London’s defence sector is set to become a little less British as two major names are about to succumb to international takeovers.
Meggitt PLC (LSE:MGGT) has recommended a GBP6.3bn offer from US peer Parker-Hannifin Corp, although TransDigm Group Inc (NYSE:TDG) has proposed GBP7bn, while Ultra Electronics Holdings PLC (LSE:ULE) has agreed on a GBP2.5bn deal from Cobham PLC (LSE:COB).
Although based in England, Cobham is owned by US private equity firm Advent International.
The acquisition sparked controversy but went ahead with promises of tight scrutiny. A year and a half after completion, Advent has sold over half of the assets it bought originally.
Meanwhile, Babcock International (LSE:BAB) Group PLC will offload its subsidiary Frazer-Nash Consultancy to KBR (NYSE:KBR) for GBP293mln as part of a disposal programme. It was acquired by Babcock in 2007, although it has mostly operated independently from it.
“The downside for UK investors is yet another part of the market is being hollowed out, reducing the breadth and diversity on offer from London-listed shares,” said AJ Bell investment director Russ Mould.
UK business secretary Kwasi Kwarteng has been called for intervention and is said to be “actively interested” in both takeovers, although no action has been taken yet, the FT reported.
Under the Enterprise Act 2002, the business secretary can stop mergers and acquisitions that could affect national security, financial stability and media plurality. However, a formal national security review could take months.
Meanwhile, Meggitt’s chairman Nigel Rudd told The Times ministers should be ready to intervene if bidders don’t commit to protect jobs and investments in the UK.
“The government could intervene,” he said. “It’s the government’s job to look after national interests. I’ve always believed that. It’s more difficult for the chairman of a public company to do that, because we have a fiduciary duty.”
He noted that “clearly, price is important” but the new owner should keep the headquarters in Coventry and keep research and development spending.
Similarly, Cobham is due to sign legally binding contracts that Ultra will continue serving the UK government for national security contracts, protecting jobs and increasing investment in innovation.
It means that any foreign takeover proposal could be blocked as a golden share gives veto powers.
Last week, the Defence Select Committee said UK government should own a ‘golden share’ in all defence groups critical to UK national security to stop them being taken over by overseas rivals.