TransDigm signals readiness to pursue Meggitt takeover


Aerospace & Defence updates

TransDigm has given the strongest indication yet that it intends to make a formal bid for UK aerospace and defence group Meggitt, which has already agreed a deal with a rival US engineer.

Kevin Stein, chief executive of the Ohio-based aircraft parts group, said that while he could not comment in detail on the company’s plans, it was interested in buying “good solid assets in the aerospace world”. 

“We don’t do things of a frivolous nature. We are serious about aerospace and about turning good businesses into great ones,” he said. 

The comments are the first time that Stein has spoken publicly since it was revealed by Meggitt last week that TransDigm had made an unsolicited preliminary offer of 900p, 100p more than an agreed bid from rival US group Parker Hannifin.

The UK Takeover Panel on Monday set a deadline of September 14 for TransDigm to make a formal bid or walk away.

TransDigm’s interest has triggered concerns in some quarters that the US group, which talks unapologetically about its ambition to offer “private-equity style returns” to its investors, could break up Meggitt.

Its business practices have also been scrutinised in the US, after a report in 2019 by the US Department of Defense’s inspector general found that the company had overcharged taxpayers on a number of contracts between January 2015 and January 2017. 

The UK government is known to be looking at the current spate of takeover bids in the defence sector, including the bid for Ultra Electronics by private-equity owned Cobham.

Meggitt, which has pushed ahead with the sale to Parker Hannifin, setting a date of September 21 for a shareholder vote, has demanded a series of commitments from the US company on protecting local jobs and investment. 

Stein defended TransDigm’s business model, insisting that the company was a long-term owner of aerospace businesses. He declined to comment on whether TransDigm was prepared to make comparable commitments if it did bid for Meggitt but stressed that the company was a “long-term investor in the UK . . .[that] understands what it takes to be successful”. 

Shares in Meggitt have traded above 800p since TransDigm’s interest emerged, suggesting that the market believes that the US group will make a firm offer. They closed at just under 820p on Tuesday.

TransDigm has been operating in Britain since 2012 and has 2,000 staff at nine sites. In January, it bought Cobham’s radios and antennas business for just under $1bn. Stein said TransDigm intended to “triple the capital investment” in the business. 

He said he had spoken to Kwasi Kwarteng, Britain’s business secretary, at the time of the Cobham purchase, telling him that “we would give him a letter, we would make whatever commitments are necessary”. 

Stein conceded, however, that the commitments in the letter were not legally binding but added: “I understand the governments in these requests. We are long-term buyers in the UK market and we understand the need to continue to invest in MoD, Home Office programmes and projects to maintain a defence capability in the nation.” 

Stein also defended TransDigm’s relationship with the US government. The company paid the government $16.1m in the wake of the report by the defence department’s inspector general, but noted that it had followed all the laws.

“You don’t want one of your largest customers upset with you. It was voluntary. We wanted to show the government that we wanted to help,” Stein said.