Parker-Hannifin has agreed to buy its London-listed rival Meggitt for 6.3 billion pounds ($8.8 billion), with the U.S. company offering commitments to maintain a strong UK presence for the defence and aerospace company.
The 800-pence-a-share cash offer carries a 70.5% premium to Meggitt's closing price on Friday and compares with the stock's pre-COVID high of 701.8 pence. The stock jumped 59% to an all-time high of 745 pence on the UK mid-cap index by 0717 GMT.
The takeover of Meggitt, which also operates in the energy sector, is the latest in a flurry of U.S. firms bidding for British companies, driven by cheap valuations due in part to the pandemic and Brexit.
It follows months of media speculation about a merger interest, with Nasdaq-listed Woodward and an unnamed private equity group coming up as potential bidders.
The deal also comes when the aviation industry is facing a severe downturn as the COVID-19 crisis disrupts travel demand. Meggitt lost 70% in market value in a span of two months as fears of the pandemic's impact on global economic growth reached fever pitch in March last year.
Meggitt's first-half results showed a 25% drop in core earnings to 116.2 million pounds on Monday, but the company said it was encouraged by the improvement in its civil aerospace business, which generates more than half of its total revenue.
DEFENCE COMMITMENTS TO UK
The company, which employs more than 9,000 people in 14 countries, is the second British defence firm in recent weeks to become a takeover target for a U.S.-backed company, following Cobham's bid for Ultra Electronics.
In the aerospace sector, U.S.-based Global Infrastructure Partners signed a $4.63 billion deal to buy British private jet services firm Signature Aviation earlier this year.
Ohio-based Parker said it would offer legally binding commitments to the British government on its role in the country.
The U.S. company will continue to meet its contractual obligations for goods and services supplied to the government, keep a majority of UK nationals on Meggitt's board and maintain the company's UK headquarters.
On jobs, it said it would maintain Meggitt's R&D, product engineering and direct manufacturing labour headcount in the UK at no less than current levels, while increasing by at least 10% the number of overall apprenticeship opportunities.
"Bringing together the Meggitt and Parker businesses will provide increased benefit to the UK with the provision of technologies, products and capabilities through Meggitt, and a leading aerospace business in Parker," Meggitt Chief Executive Tony Wood said.
Parker, which has 2,100 employees in the United Kingdom, said the deal would add to earnings in the first full 12 months after closing, adding it expects $300 million of savings and $250 million in one-time costs relating to the merger.
Rothschild & Co and Morgan Stanley advised Meggitt on the financial terms of the deal, while Citigroup advised Parker.
($1 = 0.7182 pounds)
Reporting by Muvija M in Bengaluru; Editing by Sriraj Kalluvila, Keith Weir and Emelia Sithole-Matarise
Source: Reuters