Meggitt expands through £408m aerospace deal

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The Independent Online

The aerospace, defence and electronics group Meggitt strengthened its presence on the new Airbus A380 superjumbo yesterday following the £408m takeover of part of Dunlop Standard Aerospace.

Meggitt, which has spent about £750m on acquisitions in the past seven years, is funding the deal through a £181m rights issue. The balance of the purchase price will be funded from a new bank loan.

The purchase of Dunlop Standard's design and manufacturing division from the private equity group Doughty Hanson will take Meggitt into the supply of wheels and brakes to a number of big military and civil aircraft programmes. In addition to the 555-seater A380 programme, Dunlop Standard is also a supplier of wheels, brakes and engine coolers to Lockheed Martin on the $100bn (£54.7bn) Joint Strike Fighter programme, the world's largest-ever defence contract.

Doughty Hanson is selling the other half of Dunlop Standard, its engine repair and overhaul business, to the rival private equity firm Carlyle.

The twin deals are due to take place at the same time and each is conditional on the other being completed. Doughty Hanson has insisted that it sells both parts of the business or neither.

The Meggitt rights issue consists of an offer of three shares for every seven held and has been priced at a deeply discounted 145p a share. This represents a 45 per cent discount to Meggitt's opening price yesterday of 262p.

At last night's close, Meggitt shares were trading just 7p lower at 255p. Taking into account the number of new shares being issued and the discount they are being offered at, Meggitt's adjusted share price should be in the order of 237p.

Terry Twigger, Meggitt's chief executive, said the share price reaction was a measure of how well the Dunlop Standard takeover had gone down in the City.

The company estimated that the deal would generate cost savings of £5m a year from 2005 onwards, although Mr Twigger said this would not lead to job losses.

The Dunlop Standard deal is by far the biggest acquisition undertaken by Meggitt and will create a group with sales of £525m. Its previous biggest takeover was the $380m acquisition of the US aerospace business Whittaker in 1999.

Mr Twigger said that once the Dunlop Standard deal was complete, Meggitt would have the capacity to spend a further £100m on smaller acquisitions.