Sharks, vultures, asset-strippers: just a few of the names that have been applied to the likes of Parker Hannifin, the US company which is trying to take over UK aviation company Meggitt. It's the latest in a spate of takeover attempts of UK engineering firms by US competitors and private equity firms. An alternative name for them would be astute businesses which can see the value in companies that dopey British pension fund managers are unable to spot.
If the takeover of UK firms is a problem or a scandal, British institutions are the real villains. They have bid down the values of these firms as they go chasing returns on US tech shares instead. Parker Hannifin has offered 800p a share for Meggitt. The market, by contrast, valued Meggitt at only 469p a share on Friday evening, before the takeover attempt was declared. Why is it that a US firm is prepared to offer such a hefty premium? Because it can see that Meggitt is a good company with niche products that commanded a healthy profit margin and in a sector with high barriers to entry for potential competitors. Many UK institutional investors, by contrast, saw a dowdy old share that hadn’t produced the supercharged returns of the US ‘tech’ sector — and so steered clear. I put the word ‘tech’ in quote marks because if there ever was a company that lived and breathed technology it is Meggitt. The idea that Deliveroo — which delivers takeaways on bicycles — is somehow a ‘tech’ share while a company which designs and manufactures electronics for aircraft is part of the frumpy old economy is absurd.
When the Covid recession struck the aerospace sector, many UK institutional investors dumped it altogether, unable to see beyond the immediate crisis and see that actually we probably will still want aeroplanes in the future. The valuation of the company remained subdued — which is why it is now ripe for takeover. Had the market been valuing Meggitt at 800p per share, it would almost certainly remain a UK company.
I have an interest to declare in that I own a small holding of Meggitt. But I am not angling for a quick profit. I would much rather it remained an independent UK company that could offer capital returns and dividends over many years. It is the same with Cobham — and Ultra Electronics, which the now US-owned Cobham is itself in turn trying to take over.
UK fund investors are all very good at playing woke: using their power to get more women on the board, to get firms to divest in fossil fuel businesses and all the rest. But when it comes to identifying value in UK stocks they have shown themselves to be dozy. Blame them, not US private equity, if you are concerned about Britain’s remaining industrial base being sold overseas.