TransDigm pulls out of bid for Meggitt as it paves way for US rival
UK aerospace group’s shares drop as Parker Hannifin set to seal agreed £6.3bn takeover
Shares in Meggitt dropped 12 per cent on Tuesday after US aircraft parts maker TransDigm bowed out of a potential bidding war for the UK aerospace and defence group.
The decision by TransDigm not to proceed with a firm offer paves the way for US rival Parker Hannifin to seal its agreed £6.3bn takeover of the FTSE 100 group pending a vote by shareholders later this month.
TransDigm, which had made a preliminary offer of 900p a share for Meggitt last month — 100p above the agreed offer from Parker Hannifin — said it had decided not to proceed with a formal offer based on the “quite limited” due diligence information it had access to.
Nicholas Howley, TransDigm’s chair, indicated the company had had an offer ready to go.
The company, he said, had arranged the “necessary financing” for the purchase and reached a memorandum of understanding with Meggitt’s pension plan trustees.
It had also communicated its commitments to the UK government “comparable” to those offered by its US rival. Parker Hannifin had made a number of pledges to the government to alleviate concerns over jobs and national security when it made its original offer to buy Meggitt.
However, “consistent with our disciplined approach to capital allocation, we make acquisitions only when we see a clear path to achieving our investment return goals with a reasonable degree of certainty”, Howley said.
Meggitt, which said it continued to recommend the offer from Parker Hannifin, insisted in a statement that it had engaged on a “constructive basis” with TransDigm and its advisers. It said it had provided both companies with “equivalent access to both confirmatory due diligence information and management”.
“In addition, in response to a request from TransDigm, further due diligence information was provided to both parties after the announcement of Parker’s cash offer for Meggitt,” the company added.
Analysts had previously raised concerns about the high level of debt that TransDigm would have to take on to fund a prospective offer, estimating that the US company’s net debt could rise to close to 10 times prospective earnings if it made an offer at 900p a share for Meggitt.
The US company, which has talked unapologetically about its ambition to offer “private equity-style returns” to its investors, also faced an uphill battle convincing stakeholders in the UK that it would not break up Meggitt.
TransDigm’s business practices have been scrutinised in the US after a report in 2019 by the US Department of Defense’s inspector-general found that the company had overcharged taxpayers on a number of contracts between January 2015 and January 2017.
Kevin Stein, TransDigm’s chief executive, defended the company’s record in an interview with the Financial Times last month, insisting it was a long-term owner of aerospace assets.
The UK government is known to be looking at the current spate of takeover bids in the defence sector, including the bid for Ultra Electronics by private equity-owned Cobham.
Shares in Meggitt fell 12 per cent to 737.29p by the close of trade in London on Tuesday.