Not all company chairmen live up to their advance billing. But you can’t say that of Sir Nigel Rudd. He’s been dubbed “The man who sold Britain”. Or at least by the Daily Mail.
True, that’s a bit overstated given that so far he’s flogged only four UK-listed companies: retailer Boots, glass maker Pilkington, engineer Invensys and, just this year, private jet servicing outfit Signature Aviation. Still, there’s a kernel of truth in it. Or colonel, in the case of his latest efforts: recommending the sale of defence and aerospace outfit Meggitt to US rival Parker-Hannifin for £6.3 billion cash.
In has flown Rudd deal No 5, flagged up by The Times market report last week. And it may prove his most controversial yet. He’s found Kwasi Kwarteng taking an “active interest”, just as he is with another defence bid: the £2.6 billion offer from private-equity backed Cobham for Ultra Electronics.
Given the price, investors may not relish the business secretary poking around either. Rudd, in the chair since April 2015, has landed 800p a share after rebuffing “several earlier, lower proposals” from Parker boss Tom Williams. Meggitt’s record high in January 2020? 697p. Parker’s bid works out at a 70.5 per cent premium to a price that had since dived to 469.1p, thanks to the Covid woes of aerospace clients including Boeing, Airbus and Rolls-Royce. As Exane analysts put it, “this offer stands well above what we would have expected”. Redburn reckons it values Meggitt’s total equity and debt at 20 times operating profits.
Still, could Kwarteng throw a spanner in the works? Despite a 57 per cent jump, Meggitt shares closed a fair bit shy of the bid at 735p — even allowing for a third quarter 2022 expected closing date. The key risk? That Meggitt’s kit is on some top military programmes — working better, you hope, than its crash-happy website. Its rudder pedal assemblies, exhaust flaps and sensors equip the F-35 fighter jet. It does flight data for the Typhoon. And it’s a leader in military fuel tanks. So, should Kwarteng call a halt on national security grounds?
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Short answer: no. Yes, Meggitt’s a supplier to the Ministry of Defence. But so is Parker. And the MoD accounts for less than 5 per cent of Meggitt’s defence sales, themselves making up only 44 per cent of the latest half-year revenues. Some 70 per cent of Meggitt defence income is from the US. Besides, Williams has tried to head off a political row by paying a full price and making “legally binding commitments”.
He’ll keep Meggitt’s Coventry HQ, ensure the board is mainly Brits, honour UK government contracts and hang on to the related tech and manufacturing sites. Plus increase R&D spend here by a fifth over five years and maintain engineering headcount, while upping apprenticeships by a tenth. Yes, R&D aside, most of the rest of his pledges are good for only a year. And they stop short of the
“post-offer undertakings” enforced with self-styled “Stalinist” enthusiasm by the Takeover Panel. Yet Kwarteng can harden things up.
Besides, Parker’s been working in Britain for 50 years, with 2,100 staff here, just 200 less than Meggitt. It’s from the US, our defence ally. And, as analyst Agency Partners noted, it’s an “industrial buyer”, not private equity. So, “politically it’s a much more convincing bid” than Cobham’s for Ultra.
Yes, it’s dispiriting to see another UK company, made cheaper by a Brexit-hit pound, succumb to an overseas buyer. Meggitt boss Tony Wood and finance chief Louisa Burdett will share £540,000 of retention bonuses, which looks a bit much. And Williams admits that some of the $300 million synergies will come from cuts to Meggitt’s 5,000 suppliers. But the PM keeps saying Britain is “open for business”. If it is, it’d be political sabotage to ground Rudd’s latest deal.
Bank’s true colours
Little beats a crisis for finding a fresh “purpose”. In February HSBC came up with a new one: “Opening up a world of opportunity”. And how, you wonder, does chief executive Noel Quinn square that with the closing down of opportunity for the citizens of the bank’s biggest market, Hong Kong?
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HSBC showed its true colours in June last year when it backed China’s new security law for Hong Kong. All that Quinn will say about that farrago is that: “As an international bank, one has to navigate the laws of every market you operate in.” But, if anything, the lender has been navigating closer to Beijing since then, its “pivot to Asia” reinforced by the sale of its US and French retail banks and the push into wealth management in mainland China.
Financially, it makes sense, even if the post-corona rebound in half-year profits — up 151 per cent to $10.8 billion — was geographically more evenly spread. Asia was only 59 per cent of profits, with Hong Kong making up $3.7 billion, though the figures were skewed by writing back $700 million of Covid bad debt provisions and low interest rates. But increasingly HSBC looks like a Chinese banking group, whose UK HQ and regulation probably depress the shares: down slightly at 396.15p. You doubt the case for relocating to Hong Kong and spinning off the UK bank will go away.
Apex premium
No surprise Sanne chairman Rupert Robson is a former investment banker. He’d already bumped Cinven up four times to 875p before opening up the books of the admin services outfit for fund managers. And now look: blindsiding Cinven, he’s got himself a potential trade buyer in the shape of Apex Group. It’s dangling 920p cash, valuing Sanne at £1.5 billion: a 52.6 per cent premium to May’s price before Cinven showed up. You can accuse some boards of rolling over too easily. Not this one.
