Minister goes into battle over £6bn defence raid

Minister goes into battle over £6bn defence raid

Minister goes into battle over £6bn defence raid: Kwasi Kwarteng steps in to protect jobs as major firm becomes latest UK company to be targeted for foreign takeover

  • Kwarteng wants the firm’s U.S. would-be buyer to keep operations in the UK
  • Coventry-based Meggitt has a 2,000-strong UK workforce and is on FTSE 250
  • Parker-Hannifin has pledged to keep UK headquarters open, take on apprentices and invest more in the company’s research arm

Ministers stepped in yesterday to protect jobs and expertise after a major defence firm became the latest UK company to fall prey to a foreign takeover.

Business Secretary Kwasi Kwarteng is seeking guarantees from the American would-be buyer of Meggitt that it will keep the firm’s operations in Britain under the proposed £6.3billion deal.

Coventry-based Meggitt traces its history to the 1850s and the invention of the world’s first altitude meter for hot air balloons. It makes vital components for planes and military jets with a 2,000-strong UK workforce and is listed on London’s FTSE 250 index.

The US firm behind the take-over, Parker-Hannifin, has put forward a range of pledges in an effort to get the Government’s support, saying they would be legally binding.

These include taking on apprentices, keeping Meggitt’s UK headquarters open and promising to invest more in the company’s research arm.

Parker-Hannifin boss Tom Williams insisted his firm has ‘a great deal of respect’ for Meggitt and will be a ‘responsible’ owner. But Mr Kwarteng is said to be taking an ‘active interest’ in the swoop.

As well as asking for more detail, he wants Parker-Hannifin to lay out its long-term plans for the workforce as so far the Ohio-based group has only said jobs in certain divisions will be safe.

Ministers stepped in yesterday to protect jobs and expertise after a major defence firm became the latest UK company to fall prey to a foreign takeover. Business Secretary Kwasi Kwarteng is seeking guarantees from the American would-be buyer of Meggitt that it will keep the firm’s operations in Britain under the proposed £6.3billion deal [Stock image]

The US company has also said it would cut down on the number of suppliers the combined group would use, potentially putting jobs at risk in the supply chain.

It is the second time in days that Mr Kwarteng has signalled he is closely monitoring the sale of a strategic firm. Another FTSE 250 group, Ultra Electronics, has been approached by American private equity company Advent International over a £2.6billion takeover.

It comes as British companies which have seen their share prices knocked by the Covid crisis – including the AA and supermarket Morrisons – have been buy-up targets for private equity groups and foreign firms.

There are added fears that deals targeting the UK’s world-leading aerospace and defence industry could affect national security.

Mr Kwarteng has the power to launch a formal ‘intervention’ so the Government can assess if a sale would pose a threat.

The City has become more sceptical after Advent bought Cobham, another key defence group, for £4billion last year. It promised to be a long-term investor but sold the majority of the company within 18 months of the tie-up.

Parker-Hannifin boss Tom Williams insisted his firm has ‘a great deal of respect’ for Meggitt and will be a ‘responsible’ owner. But Mr Kwarteng is said to be taking an ‘active interest’ in the swoop [Stock image] 

Tory MP Tobias Ellwood, defence committee chairman, said the Government must intervene and launch a full investigation into the Meggitt deal. He added there has been a ‘one-way ticket’ of important UK firms being snapped up by overseas groups.

Tory former defence minister Sir Gerald Howarth added: ‘Parker-Hannifin has been established in the UK for a long time and they have been prepared to give some commitments.

‘I’d like to see some of them be slightly stronger – a number are phrased by ‘plans to’, ‘intends to’ – and we all know that intentions can change overnight.’

Meggitt, with 9,000 staff globally, makes parts for the RAF’s Typhoon fighter jets, American F-35 aircraft and Hercules military planes. Parker-Hannifin, valued at £29billion, has 2,000 workers in the UK and 55,000 worldwide. 

ALEX BRUMMER: As ministers go into battle for UK defence company, are we finally fighting off the foreign sharks? 

After a long silence during which great swathes of Britain’s aerospace and defence industries have disappeared into private equity and overseas hands, ministers look at last to have decided that enough is enough.

Following a dramatic £6.3billion bid for aerospace and engineering firm Meggitt – vital suppliers to the UK’s big two defence contractors BAE Systems and Rolls-Royce – the Government has said it is minded to intervene.

The proposed takeover by US competitor Parker-Hannifin at least comes from a trade buyer and one of Britain’s Nato allies. This can only be preferable to a private equity group only interested in a quick deal, an easy profit and with no loyalty to anyone.

But, as with a series of recent takeover attempts for companies in Britain’s leading aerospace, defence and satellite sectors, the present deal will be paid for largely by debt and could lead to the loss of UK intellectual property and skills overseas.

No wonder Business Secretary Kwasi Kwarteng, who in the past has welcomed overseas deals as showing global confidence in Britain, has indicated he wants to draw a line against the foreign marauders.

Meggitt has been a key player in UK aerospace since 1850. It joins a long list of British firms – including satellite company Inmarsat, flight refuelling group Cobham, antennae maker Laird and GKN Aerospace – to fall into the hands of owners with short-term horizons in an industry where it can take decades to create expertise and an innovative culture.

Following a dramatic £6.3billion bid for aerospace and engineering firm Meggitt – vital suppliers to the UK’s big two defence contractors BAE Systems and Rolls-Royce – the Government has said it is minded to intervene [Stock image]

More distressingly still, aerospace and hi-tech are seen as areas in which the UK is most competitive in global markets.

Many believe they have a great part to play in powering the British economy, exports and jobs markets forward after Brexit and Covid. City advisers backing the Parker-Hannifin bid point out that just 10 per cent of Meggitt’s income comes from the UK. What is seldom mentioned when it comes to foreign takeovers are the longer-term impacts.

The companies effectively become branches for the foreign buyer. During an economic downturn it is the overseas interests which first lose jobs and investment.

Moreover, with each foreign takeover the corporation tax base, that is the levy on company profits, moves abroad.

When the deal is done by adding debt to the balance sheet, cuts in jobs and investment eventually have to be made. The latest deal comes at a time when other UK defence firms including Ultra Electronics, which makes detector equipment that monitors Russian submarines, and Senior Engineering, which makes parts for fighter jets, are also under siege.

Business Secretary Kwasi Kwarteng (pictured), who in the past has welcomed overseas deals as showing global confidence in Britain, has indicated he wants to draw a line against the foreign marauders seeking to buy up companies in the UK’s aerospace, defence and satellite sectors [File photo]

Many UK companies have become easy prey for overseas buyers because share prices on the London Stock Exchange are at big discounts to their overseas counterparts as a result of the ‘Brexit discount’.

This is writ large in the proposed takeover of Meggitt where Parker-Hannifin is offering to pay 70 per cent more for the shares than they were worth before the bid.

A price premium on this scale makes it hard for the board of the company being attacked to defend because they have to get the best deal for investors.

Defence firms are different because they go through a national security and public interest test. In the recent past many pledges made at the time of a takeover, to keep jobs, headquarters and R&D spending, have proved unenforceable because of fast-changing economic conditions.

If the Government indeed stops the Meggitt sale, it would be a rare setback for veteran Meggitt chairman Nigel Rudd, who has earned the sobriquet the ‘man who sold Britain’ for his role in selling major enterprises including railway signalling firm Invensys and Boots the Chemists.

Many UK corporate horses already have bolted – but finally there is a chance to slam the stable door firmly shut.

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