Land a profit while Meggitt hovers into takeover zone

UPDATE

AVIATION Group Meggitt is flying high – back into the FTSE100 to be precise. The company, which makes parts for both commercial and military aircraft, has had a turbulent ride over the past few years. As a result it has zigzagged in and out of the top British index.

This might well be its final flight, as the company is in the middle of a takeover battle. It has agreed to a £6.3billion takeover from US-based engineer Parker Hannifin, but has also been approached by rival TransDigm, which could make an even higher bid.

TransDigm now has until September 14 to make a formal offer or get off the plane, the Takeover Panel has ruled. To add to the complications, the UK Government has said it will be monitoring any Meggitt takeover closely due to the defence implications if the company has a new owner. The shares have risen stratospherically thanks to the takeover news, from £4.54 at the end of July to £8.37 on Friday. That makes them look very expensive indeed, whatever you think about the prospects for military and commercial aircraft, post pandemic.

Of course the company’s share price is merely a reflection of what the market thinks will happen in terms of the takeover battle. The agreed bid from Parker Hannifin, which is the only deal officially on the table, is at £8.00 a share, so the current elevated price indicates that some people expect TransDigm to come good. It is understood that TransDigm would pay £9.00 a share, so if you believe a deal could go ahead, the shares are a steal. However, the longer the company waits to make an offer, the less likely a deal becomes, especially with the Government indicating that a successful bid would require assurances about a continued presence in the UK. Parker Hannifin has already made some, for the first year at least.

That is a lot of uncertainty, especially if you’ve already made a profit on Meggitt, and do not want to see it coming crashing down to earth with a bump.

Listed on: Main market Ticker: MGGT Contact: www.meggitt.com, 024 7629 4200

MIDAS VERDICT: Midas readers will know that the column has long been a fan of Meggitt, which was tipped in April 2018 at £4.37, and then again in January 2019 at £4.97. Readers who followed our recommendations are sitting on some amazing profits and might be wondering whether it is time to press the button for the ejector seat. While it is tempting to hang on to see what happens next with TransDigm, anyone who has spent time in the City knows there is many a slip between a takeover bid and an actual acquisition, and the involvement of the British Government makes the unknowns even greater. Despite the firm’s elevation into the FTSE 100 and its continued strong performance, there’s no shame in bringing Meggitt into land. Take profits.