LONDON (Alliance News) - Aerospace and engineering group Meggitt PLC saw its shares rise in early trade on Monday after it said it has struck a USD200 million deal to acquire the advanced composites unit of FTSE 250-listed aerospace and defence manufacturer Cobham PLC.
Meggitt shares were up 0.9% to 509.00 pence on Monday morning, one of the best performers in the FTSE 100, having been the biggest gainer just after the open. Cobham shares were flat 284.20 pence, having initially also gained.
Meggitt will pay USD200 million in cash to acquire the Cobham division, which makes a range of engineering aerospace components and secondary structures and which make USD81.1 million in revenue in 2014. It will be integrated into Meggitt's Polymers & Composites division. The deal will be backed by a USD300 million credit facility, Meggitt said.
The deal is expected to be earnings-enhancing immediately and Meggitt anticipates it will exceed the weighted average cost of capital by the third year of of ownership. It expects to generate estimated run-rate cost synergies of around USD3.8 million from 2017 onwards, with an upfront cost of USD4.3 million.
Meggitt said the acquisition will boost its existing complex composites product portfolio and will enhance its position on some key work platforms. The majority of the revenue for the division is derived from the military market, but Meggitt said there are significant opportunities to grow its commercial aerospace sales.
"The acquisition represents a major step in strengthening our composites capability. The advanced composites businesses of Cobham are highly complementary to Meggitt's business model, with strong technology positions, a significant level of single-source content and substantial growth opportunities in commercial aerospace," said Meggitt Chief Executive Stephen Young.
"The acquisition will enhance our materials and manufacturing technologies and product offerings in complex composites, which are key to next generation aircraft components," Young added.
Cobham said the deal is in line with its strategy of "simplifying its portfolio by focusing on segments where it has scale and market leading positions".
The division makes a number of engineering aerospace engine composites, including spinners, internal multi-stage components and exhaust flaps, Meggitt said. It also makes radomes, which are structures used to protect microwave antennas, and provides air-to-air refuelling and structural munitions components.
The division has operating facilities in the US, in San Diego, California and Baltimore, Maryland, and in the UK, in Shepshed in Leicestershire and Stevenage in Hertfordshire.
Meggitt and Cobham both saw their shares rise last week after releasing respective interim results. Meggitt saw its half-year profit rise on the back of robust revenue growth, split between a solid organic performance and strong aftermarket services sales. Cobham said its revenue and underlying pretax profit both surged on the back of the acquisition of telecommunications equipment maker Aeroflex.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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