The Meggitt (LSE:MGGT) share price is flying today on news that the FTSE 250 company has received a bid from US rival Parker-Hannifin Corporation. Here’s what those invested — and those who are merely curious — need to know.
What’s the deal?
Under the terms of the deal, owners of the stock will receive a round 800p for every share that they own. This would be a 70.5% uplift on the Meggitt share price last Friday. As Mondays go, I can think of worse ways to start a week as an investor!
It’s not hard to see why Parker would be interested in acquiring the FTSE 250 member either. Both already supply defence equipment to the UK and US governments, as well as those in the EU. Snapping up Meggitt would also allow the $47bn giant the opportunity to double its Aerospace Systems segment.
The latter could be great timing on Parker’s part. Describing the deal as “strategically and culturally compelling”, Meggitt’s potential suitor believes the deal will allow it to take advantage of strong growth opportunities going forward, especially as the world gets back to normal after Covid-19 and commercial aerospace recovers.
Based on its calculations, Parker believes its earnings will increase in the first full year after the deal is done. It’s certainly no stranger to acquiring and successfully integrating UK companies.
This is not to say that Meggitt will be moving across the pond. To allay any fears, Parker has already said that it will keep the components supplier headquartered in the UK and ensure that the majority of Meggitt’s board is made up of UK nationals. R&D spending will also be maintained (and possibly increased) in the years ahead.
Meggitt share price: what now?
Unsurprisingly, Meggitt’s directors have unanimously recommended that shareholders vote to accept the takeover. This is where things get even more interesting.
The Meggitt share price was trading around 730p a pop this morning. That’s up a whopping 55% on last Friday’s closing price. However, it’s still almost 10% below the offer price mentioned in today’s statement.
The question is whether today’s news will bring out another bidder. As Morrisons has shown, it only takes one buyer to show their hand before others arrive on the scene. Then again, a premium of over 70% is already very generous and takes the share price back above pre-Covid levels. Another potential suitor would really need to dig deep.
There is, of course, always a chance the deal might fall through. Holders may reject the offer, thinking they can get more for their company. Should this be the case, I’d expect the share price to become volatile if no one else steps forward. It’s interesting to note that gaming firm Sumo Group‘s valuation has begun to drift since it received an offer from China’s Tencent in mid-July. Then again, this might have something to do with the internet giant hitting the headlines back home!
UK plc on sale!
Regardless of what happens next, today’s announcement is more evidence that the (relatively cheap) UK market is continuing to attract overseas bidders. As such, I don’t think this will be the last big takeover we’ll be hearing about in 2021. Indeed, I suspect FTSE 100 firm Burberry could be one of the next to receive an offer or two unless it takes steps to reassure investors.
