Will Meggitt shares keep climbing on Parker Hannifin deal?

• Meggitt PLC (LON: MGGT) share price soars to 735 pence per share on Monday (02 August 2021)
• US industrial firm Parker Hannifin Corp has offered 800 pence per share to buy Meggitt
• Britain is studying the deal and may seek reassurances on protecting jobs
• Interested in trading Meggitt shares? Open an account with us to get started.

Meggitt stock price: what are analysts saying?

Shares of British aerospace engineer Meggitt jumped 56.7% day-on-day to the top of the European stock index STOXX 600, touching an all-time high of 735 pence after Parker Hannifin Corp’s takeover bid.

The London-listed counter’s strength also helped the domestically focused mid-cap and FTSE 250 index race to a new record high, Reuters reported.

Out of 17 research teams, eight rated the stock a ‘buy’, seven recommended ‘hold’, while two gave ‘sell’ calls as of Monday.

Their average 12-month target price was 577.64 pence per MGGT share, according to Bloomberg data. That implies a potential downside of 21.4% based on Monday’s closing price.

Among the most bullish on Monday were Societe Generale, which suggested ‘hold’ alongside a price target of 800 pence, as well as Investec, which rated MGGT ‘buy’ and targeted 500 pence per share.

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Parker Hannifin deal: What are the highlights?

Ohio-based Parker Hannifin, which makes industrial motion-control systems and has 2,100 employees in the UK, has agreed to buy its 170-year-old British competitor in a deal valued at £6.3 billion (US$8.8 billion).

The US industrial company’s offer stands at 800 pence per share, 71% above Meggitt’s closing price last Friday. The latter’s board intends to recommend the offer to its shareholders.

A London-based trader told Reuters: ‘I am quite impressed by the massive premium which is being paid for Meggitt.’

Britain’s government spokesperson said it was ‘closely monitoring’ the proposed acquisition. Under the Enterprise Act 2002, the UK Business Secretary can intervene in mergers and takeovers which raise national-security concerns, the spokesperson added.

The authorities may also seek more reassurances on preserving jobs and the companies’ plans to protect UK operations, although at this stage no decision has been made to intervene, Bloomberg reported.

The US takeover of Meggitt is the latest in a recent series of mergers and acquisitions targeting British firms, according to Reuters.

Last month, US-owned defence contractor Cobham made a £2.6 billion buyout approach for London-listed Ultra Electronics Holdings PLC.

What guarantees did Parker Hannifin provide?

Parker Hannifin made several legally binding commitments, including to protect engineering and direct manufacturing jobs, to allay potential concerns about the takeover bid.

Its chairman and CEO Tom Williams said the US firm was committed to protecting research and development spending at Meggitt for the next five years, although its other guarantees are only valid for a year.

Agency Partners analyst Nick Cunningham noted that it was unlikely the UK government would stop the deal, given Parker Hannifin’s proposed safeguards.

‘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’s customers include the Ministry of Defence, Petrobras and Rolls-Royce. The UK firm also operates in the energy sector.