UK defence supplier Meggitt faces job threats after it finalised a £6.3bn takeover deal from US rival Parker Hannifin. Board of the FTSE 250 engineering company that operates in the aerospace, defence and energy markets has unanimously recommended that shareholders accept the 800p-a-share deal.
Parker, which employs over 2,000 staff in 18 facilities across the UK, has made a number of legally binding contractual commitments to the government to protect Meggitt's operations as part of the deal. These include keeping Meggitt's UK headquarters in Coventry, maintaining the headcount in its research and development, product engineering and manufacturing operations, ensuring most of the company’s board are UK nationals; and increasing research and development expenditure by a fifth during the next five years.
However, it will look to cut jobs in areas not protected by the legal guarantees. Parker chairman and chief executive Tom Williams said a significant number of Meggitt's approximately 2,000 UK staff would be protected from the cuts. He said, “Any transaction of this size, or any transaction period, typically has some overlap between the two businesses. We are going to evaluate all the talent, all the people... and our intention is to put the best of both companies.”
The acquisition will almost double Parker's aerospace operation. Williams said, “We are committed to being a responsible steward of Meggitt and are pleased our acquisition has the full support of Meggitt's board. We fully understand these responsibilities and are making a number of strong commitments that reflect them.”
All of Parker's legal commitments are, however, only binding for one year, except for the R&D investment pledge which comes with a five-year guarantee. Williams said, “I see no reason why we would ever move the UK headquarters. These are going to be commitments that will be there for a long time. We are a strategic buyer, we are builders. If you were to benchmark this total offer – our binding commitments in addition to our financial offer – I think you would find it stands in a place of its own compared to other transactions.”
He added that the deal was structured in anticipation of the upcoming National Security and Investment Act, which gives the UK government power to protect important national assets from foreign takeovers. Williams said, “We are very conscious of it. That is why we have framed the binding commitments as we did in such a way that they would be supported by all stakeholders.”
The deal is being closely monitored by the UK government. A government spokesperson was quoted by a media report as saying, “Under the Enterprise Act 2002, the business secretary has powers to intervene in mergers and takeovers which raise national security concerns. While commercial transactions remain primarily a matter for the parties involved, the government is closely monitoring the proposed acquisition of Meggitt by Parker-Hannifin.”
