TransDigm Enters Bidding for U.K. Defense Supplier Meggitt

(Bloomberg) -- TransDigm Group Inc. joined in the bidding for Meggitt Plc, making a surprise counter-offer well above an earlier proposal intended to discourage challengers for the U.K. manufacturer of airplane components.

Shares of Meggitt, a Coventry, England-based aerospace and defense supplier, surged to a record Wednesday on the preliminary, non-binding offer of 900 pence a share. The approach is about 13% higher than the 6.3 billion-pound ($8.7 billion) offer from TransDigm’s Cleveland rival, Parker-Hannifin Corp., that Meggitt’s board said earlier this month it planned to recommend.

While TransDigm is offering more, a higher price won’t be the only factor in a sale of a 170-year-old U.K. company that possesses advanced technology used in military and industrial applications. Meggitt made it clear that its directors continue to favor the firm Parker bid, citing considerations such as the impact on employees and the U.K. government, whose consent will be pivotal in any deal.

Meggitt will weigh the new proposal though “Parker’s offer continues to represent an attractive proposition for Meggitt’s shareholders and for its broader stakeholders,” it said in a statement.

The prospect of a bidding war for the manufacturer underscores the flurry of consolidation involving aerospace suppliers still reeling from last year’s market collapse and Boeing Co.’s woes. All three companies -- Meggitt and its two suitors -- show Boeing as their No. 1 customer customer in supply-chain data compiled by Bloomberg.

TransDigm, which has grown rapidly through acquisitions, later confirmed it had approached Meggitt with an offer. “There can be no certainty that an offer will be made, nor as to the terms on which any such offer might be made,” Cleveland-based TransDigm said in a statement.

Meggitt advanced 16% to 830 pence at the close of trading in London, giving the company a market value of 6.5 billion pounds. The stock rose the most on record on Aug. 2, after the Parker offer was made public.

TransDigm, which makes aircraft components including ignition systems, pumps, actuators and controls, fell less than 1% to $615.48 at 1:57 p.m. in New York. Larger Parker, which provides motion-control and liquid purification products across a number of industries, was down also down less than 1% at $296.89.

U.K. Role

Meggitt is one of the few remaining U.K.-based civil aerospace and defense companies, and Business Secretary Kwasi Kwarteng’s Department for Business, Energy and Industrial Strategy and the Ministry of Defence were already working to assess the Parker transaction in more detail, Bloomberg News reported this month.

Parker has gone to lengths to secure the purchase. The 71% premium it offered earlier this month was meant to be a knockout bid so high it wouldn’t be challenged. Chairman and Chief Executive Officer Tom Williams said at the time that he wanted a price that was “very compelling” and would gain shareholder support.

A spokesman for Parker declined to comment.

Parker has also said it would make a number of legally binding commitments, including protecting engineering and direct manufacturing headcount, and said it would work out the details with the government and others.

“The agreed bid has come with a number of commitments which are well thought through and beneficial for Meggitt’s employees and acitivities in the U.K.,” said independent aerospace and defense analyst Howard Wheeldon.

Gaining Meggitt would nearly double the size of Parker-Hannifin’s aerospace systems unit and bring in coveted technology in areas including braking systems, advanced sensors and thermal management.

U.S.-U.K. Deals

The potential transaction is the latest example of U.S. buyers eyeing U.K. aerospace. Cobham Ltd., the U.K. defense contractor that was acquired by U.S. private equity firm Advent International Corp. in early 2020, has made a 2.6 billion-pound buyout approach for Ultra Electronics Holding Plc. The government scrutinized the first Cobham deal and said it would do the same for the Ultra proposal.

TransDigm completed the acquisition of Cobham’s communications and navigation division in January, after competing with buyout funds for the unit.

The company’s balance sheet could support a deal of around $10 billion, analyst Sheila Kahyaoglu of Jefferies, told clients Wednesday. The deal could be funded in the debt market, but leaves a tight window and may require $1 billion of equity, she wrote in a report, adding: “This could have been one reason for an over the top bid if financing was not arranged yet.”

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