Although doubts have been raised over other private equity takeovers of UK defence companies, Parker Hannifin Corp’s £6.3bn offer for Meggitt PLC (LSE:MGGT) is likely to succeed, says Berenberg.
The 800p per share agreed cash offer for Meggitt is "clearly attractive" at a 71% premium, the investment bank said in a note to clients on Tuesday, adding that they "expect the deal to complete because it is a relatively simple (cash) structure and is unlikely to encounter competition issues".
It will require standard regulatory clearance including from the UK, the EU, the US, Australia, Brazil and China, but the analysts said they believe regulatory risk is low, with Meggitt and PH’s aerospace portfolios "diverse and complementary".
However, they added that "China adds a political dimension for a potential US owner that may prolong the process", though Meggitt’s sales exposure to China is less than 3%, mainly from aerospace maintenance but also with some in-country manufacturing but "no significant IP sensitivities".
This need for Chinese regulatory clearance, plus a long expected period to complete of around 12 months and "potential headline risk" perceived from the UK press, "will likely leave the shares drifting around the current level" at around an 8% discount to the offer.
"We do not anticipate a counter-bid and hence risk and reward seem balanced."