March 6, 2007 / 8:30 AM / 12 years ago

Meggitt to buy K&F Industries

LONDON (Reuters) - Aerospace firm Meggitt announced an agreed takeover of U.S. firm K&F Industries worth $1.8 billion (930 million pounds) including debt on Tuesday, along with a 14-percent rise in 2006 underlying profit.

Chief Executive Terry Twigger told Reuters the acquisition would bolster Meggitt’s position in aircraft wheels and brakes and help its sales to the U.S. Department of Defense, among others.

“This deal offers great value to our shareholders,” Twigger said in a telephone interview, adding that K&D trades at roughly the same multiple as Meggitt.

K&F said the deal involved a cash offer at $27 per share, versus a Monday close of $24.50, valuing its equity at $1.1 billion. Meggitt will also take on about $700 million in debt, or roughly equal to its net debt at the end of 2006.

Meggitt (MGGT.L) plans to fund the acquisition in part with a 1-for-2 rights issue at 200 pence per share to raise approximately 424 million pounds net of expenses, it said in a statement to the London Stock Exchange.

“This represents a major step forward for the company,” said a research note from analyst Harry Phillips at EVO Securities, who holds an “Add” rating and a 340 pence target price on Meggitt. He said K&F would give Meggitt a strong position in brakes for business and regional jets.

Meggitt shares rose slightly in early trade but by 9:38 a.m. were trading down 1.15 percent at 321 pence.

PROFITS RISE

Meggitt posted 132.7 million pounds in 2006 profit before tax, amortisation, exceptionals, inventory re-evaluations and financial instruments.

Meggitt said its 2006 turnover rose 9 percent to 670.3 million pounds.

K&F is one-third the size in turnover, with $424 million in 2006 and $146.4 million in adjusted operating profit.

Twigger told Reuters the addition of K&F would bring strength in steel brakes to complement a strong position in carbon brakes gained in its 2004 takeover of Dunlop Aerospace.

Its main rivals in the sector are Goodrich Corp. GR.N, Honeywell International Inc. (HON.N) and Messier-Dowty (SAF.PA).

“We expect the acquisition to create material synergies and be significantly earnings enhancing in the first full year of ownership,” Meggitt said.

Overall the company is benefiting from a surge in airliner orders seen over the past two years and strong U.S. military spending.

Meggitt, whose products include aircraft flight displays, fire-detection systems and unmanned air vehicles, announced a final dividend of 6 pence, up 13 percent.

It said it had reorganised the company into three divisions: Aerospace Equipment, Sensing Systems and Defence Systems.

In 2006, it acquired Radatec, Keith Products and Firearms Training Systems Inc. in deals worth about 90 million pounds combined.

The K&F takeover is subject to approval by both sets of shareholders as well as regulators.

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