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Kwasi Kwarteng, the Secretary of State for Business, Energy & Industrial Strategy (BEIS) that, following public consultation, he has accepted the competition and national security undertakings provided by Parker-Hannifin Corp. (Parker) in relation to the acquisition of aerospace and defence group Meggitt plc (Meggitt) and the transaction is therefore cleared to proceed by the UK Government. 

On 2 August 2021, Parker and Meggitt that they had agreed the terms of a £6.3bn recommended cash offer from Parker for the entire issued and to be issued share capital of Meggitt, which would see shareholders receive £8.00 per share (see: Parker-Hannifin to take off with Meggitt). The offer, which represented a 71% premium to the closing price on 30 July 2021, was by Meggitt’s shareholders on 21 September 2021, however less than a month later the Secretary of State for BEIS issued a (PIN) under the Enterprise Act 2002, halting the proposed acquisition on national security grounds (for further information, see: (a subscription to Lexis®PSL Competition is required)).

Under the Enterprise Act 2002, the Secretary of State instructed the Competition and Markets Authority (CMA) to investigate the acquisition and report its findings by 18 March 2022. Following the CMA’s phase 1 report and after receiving advice from the Ministry of Defence about the national security implications of the acquisition, the Secretary of State considered launching a phase 2 inquiry, which would consist of a more detailed assessment by the CMA (for further information, see: (a subscription to Lexis®PSL Competition is required)). 

In order to mitigate the competition and national security concerns, the US-based engineering and aerospace company made a number of undertakings to the UK government. Parker has promised to increase Meggitt’s research and development spending in the UK by at least 40% and its UK apprenticeship opportunities by 20%. In addition to its pledge on R&D spending, Parker has agreed to keep Meggitt’s headquarters, its aerospace and advanced materials centre of excellence and other key areas of operational capability in the UK and maintain its contractual obligations regarding supply of goods and services to HM Government. Parker has also reaffirmed its commitment to Meggitt's sustainability targets of reducing net carbon emissions by 50% by 2025 and achieving net zero greenhouse gas emissions by 2050.

Under paragraph 3 of Schedule 7 to the Enterprise Act, the Secretary of State may accept the undertakings from Parker in lieu of referring the proposed acquisition for a phase 2 inquiry and on 28 June 2022, BEIS published the proposed undertakings for public consultation.

Parker appears to have successfully quelled the concerns of the UK government as BEIS formally accepted Parker’s undertakings on 19 July 2022, clearing the way for the takeover to go ahead. Parker confirmed that it has signed these legally binding economic undertakings with the UK Secretary of State which will be maintained for five years post-transaction. The agreement between Parker Hannifin and BEIS means the deal will not be referred for a full CMA investigation.

Parker welcomed the announcement and confirmed that it continues to expect the transaction to close in Q3 2022. Tom Williams, Chairman and CEO of Parker :

‘We are pleased to have reached this important clearance milestone from the UK Secretary of State… We have also agreed to substantial legally binding commitments, which underscore our deep commitment to the UK. As we move closer to the completion of the acquisition and the combination of these two strong businesses, we look forward to welcoming the Meggitt team to Parker.’

BEIS took the initial decision to launch an investigation into the proposed acquisition when it was first announced amid rising concern about UK companies being subject to takeover by foreign bidders. Meggitt’s importance as a defence contractor and supplier to the UK’s armed forces increased these concerns to the point of intervention. Under the Enterprise Act 2002, the Secretary of State has power to intervene in M&A transactions which raise national security concerns, powers were strengthened by the new  (NSIA 2021) (a subscription to Lexis®PSL Corporate is required), which came into force on 4 January 2022. The NSIA 2021 appeared to be a response to the UK government’s overall theme of being wary of foreign investment in recent years, compounded by the global economic disruption caused by the Ukraine conflict. However, despite the retrospective application of the NSIA 2021, which can apply to transactions that closed on or after 12 November 2020, the Parker/Meggitt transaction, which is still ongoing, was the last transaction to be investigated under the old rules of the Enterprise Act 2002. Currently, the NSIA 2021 has been used by the government to call in three transactions on national security grounds (see: a subscription to Lexis®PSL Competition is required)), one which was ultimately prohibited on 20 July 2022, and two which are still ongoing including the acquisition by Altice of an addition 6% of shares in BT, which will have the effect of increasing its stake to 18% (for further information, see: Altice’s increased stake in BT referred for national security assessment, (a subscription to Lexis®PSL Corporate is required)). 

With the ultimate objective of preventing transactions that could harm the UK’s national security, we can expect to see more and more qualifying acquisitions being called in under the NSIA 2021.

Parker-Hannifin’s acquisition of Meggitt is expected to close in Q3 2022, Market Tracker will continue to monitor this transaction as it develops.