Takeover activity showed no sign of slowing as markets entered August with two FTSE 250 stocks agreeing offers and talk of a bid battle in the grocery sector.

Aerospace engineering firm Meggitt (MGGT) announced it had agreed an 800p per share cash bid from US industrial controls firm Parker-Hannifin, sending its shares up 58% to 743p.

KNOCK-OUT BID

The bid represents a 70% premium to Friday’s closing price of 469p, valuing Meggitt at £6.3 billion, which is probably enough not only to satisfy the firm’s mainly US investor base but also to deter a rival bidder from making an approach.

Meggitt and Ohio-based Parker-Hannifin have complementary businesses with a core focus on aerospace and defence, and Meggitt has transformed its business over the last four years, streamlining its offering and investing in new technology, meaning the deal will be earnings-positive within the first year.

Given Meggitt is a ‘trusted supplier’ to the UK Ministry of Defence, Parker is offering a number of legally-binding commitments to the government including keeping the firm’s headquarters in the UK, keeping a majority of UK nationals on its board, and increasing research and development spending by at least 20% over the next five years.

RAISING THE STAKES

Fund administrator and asset services firm Sanne Group (SNN) revealed that it had received a possible offer from private equity firm Apex pitched at 920p per share which it would recommend to shareholders.

In mid-May, rival private equity firm Cinven made an initial offer of 830p per share plus the 9.9p final dividend for 2020, which was rejected out of hand. Cinven increased its bid twice, to 850p and finally 875p per share, but these offers were also knocked back by the board.

Sanne shares rallied 8% to 911p on the Apex offer, valuing the firm at £1.35 billion.

SECOND TIME LUCKY?

Meanwhile, there was a good deal of market chat around the likelihood that snubbed bidder Clayton Dubilier & Rice would make a renewed attempt to take over grocery chain Morrison (MRW).

The US private equity firm initially offered 230p per share or £5.5 billion for the supermarket firm, which the board rejected in favour of a rival 254p per share of £6.3 billion offer from a consortium led by Softbank-owned investment group Fortress.

At the start of July, Apollo – another private equity firm, which narrowly missed out on buying Asda last year – said it was also ‘evaluating a possible offer’, nudging Morrison’s share price above the value of the Fortress offer.

CD&R is said to be putting together debt and equity finance to launch a revised bid for the firm this month. Morrison shares gained 1.3% to 271p.

EXPERT VIEW

'The UK takeover spree continues to move at pace, with yet another FTSE 250 stock receiving a bid', said AJ Bell investment director Russ Mould.

'UK stocks have long been considered cheap and this year’s M&A spree shows that overseas investors have finally got enough confidence to pounce on opportunities after years of showing little interest in the market.'

However, flagged Mould, 'We’ve seen quite a few private equity suitors having to raise their offers this year as companies and shareholders push back on initial approaches, saying they are too low. Private equity firms have a reputation for trying to get a bargain, but their tactics have been fully exposed this year and it now seems rare for the first offer to be the winning one.'

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Issue Date: 02 Aug 2021