* Meggitt shareholders to get 800p/share in cash
* Shares surge 62% to record high on midcap index
* Commitments to British government part of deal terms
* Closely monitoring the planned deal, says British govt
(Adds response from British government, chart)
By Muvija M
Aug 2 (Reuters) - Parker-Hannifin has agreed to buy
its London-listed rival Meggitt for 6.3 billion pounds
($8.8 billion), with the U.S. company making a series of
commitments, including on UK jobs, to fend off any potential
concerns about the deal.
The takeover is the latest example of corporate America's
appetite for British companies, whose valuations are proving
attractive partly as a result of the impact of the coronavirus
pandemic and Brexit.
In an initial response, the government said it was "closely
monitoring" the proposed takeover of the defence and aerospace
company, based in the central English city of Coventry.
The 800-pence-a-share cash offer marked a 71% premium to
Meggitt's last closing price and compares with the stock's
pre-pandemic high of 701.8 pence. The stock jumped as much as
62% on Monday to an all-time high of 758 pence.
The deal-making has prompted concerns about high-profile
British companies being bought by private equity firms, which
then seek to cut costs before selling on the business.
A $3.6 billion bid last month from Cobham, owned by U.S.
private equity firm Advent, for defence supplier Ultra
Electronics has already attracted the attention of the
British government.
Parker Chief Executive Tom Williams tackled some of those
issues in a conference call with reporters on Monday. "We are
not private equity," Williams said.
"We intend to own Meggitt for a very, very long time," he
added, noting his century-old company had bought 80 companies in
the last two decades.
UK COMMITMENTS
Nick Cunningham, analyst at equity research firm Agency
Partners, said it was unlikely that the UK government would stop
the Meggitt deal, given Parker's proposed safeguards.
"Politically it's a much more convincing bid than that for
Ultra, as Parker is an industrial buyer and is likely to keep
the majority of Meggitt's aerospace activities, which is the
bulk of the group," Cunningham said.
Meggitt counts the Ministry of Defence (MoD) as well as
companies including Petrobras and Rolls-Royce as its
customers.
"While commercial transactions remain primarily a matter for
the parties involved, the government is closely monitoring the
proposed acquisition of Meggitt by Parker Hannifin," a
government spokesperson said.
"The Business Secretary has powers to intervene in mergers
and takeovers which raise national security concerns."
Ohio-based Parker, which operates in industrial and
aerospace markets with 55,000 employees in 50 countries, has
made a series of commitments to the British government on jobs
and security.
The U.S. company will keep a majority of UK nationals on
Meggitt's board and maintain the company's UK headquarters.
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.
The deal follows months of media speculation about merger
interest in Meggitt, which also operates in the energy sector.
Shares in Meggitt had gained 86% since the rumours emerged in
early May.
In a joint statement, Meggitt said while its board did not
solicit an offer for the company, and several earlier, lower
proposals from Parker were rejected, it intends to unanimously
recommend the deal.
Parker, which has 2,100 employees in the UK, said the deal
would add to earnings in the first full 12 months after closing,
and that it expects $300 million of savings and $250 million in
one-time costs.
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 and Paul Sandle in London;
Editing by Sriraj Kalluvila, Emelia Sithole-Matarise and Jane
Merriman)
