- Meggitt to be acquired in an all-cash deal at 800p per share
- Regulators could block the acquisition on national security concerns
- Rising interest rates could impact the Meggitt share price moving forward
In 2021 the Meggitt (LSE:MGGT) share price rose over 74%. This is an outstanding performance compared to the market in the same period. Will 2022 be a repeat of 2021 for this aerospace business? Probably not. Let me explain why.
A background of the business
Meggitt was founded in 1947 in the UK. The company has a wide portfolio of products and serves customers from the production stage to the post-production stage within the aerospace sector. For example, it provides core sensing and control technologies on hydro, steam and gas turbomachinery generators.
The company operates internationally through four segments – Airframe Systems, Engine Systems, Energy & Equipment, and Services & Support. The civil aerospace business has continued to recover from the covid-19 pandemic woes.
What will happen to the Meggitt share price in 2022?
Having jumped over 70% up in 2021, can the Meggitt share price continue its momentum in 2022? Year to date, the stock has so far stayed relatively flat.
Yet despite the emergence of the Omicron variant, the economy has continued to recover. More so, this strain is not as deadly as originally expected. What’s more, existing vaccines appear to be effective against it. As such, while it’s more infectious, I believe the impact on the aerospace sector could be minimal. That’s obviously good news for the Meggitt share price. So why isn’t it climbing?
In August last year, Meggitt’s management came to an agreement with Parker-Hannifin Corporation to be acquired at a share price of 800p. As with any acquisition, the stock jumped to reflect this, and if the deal goes ahead, then shares will eventually become delisted as this is an all-cash deal.
Some things to consider
Today, the stock is trading below the acquisition price. Is this a buying opportunity? Maybe, but it does come with risks. All acquisitions have to be approved by regulators. And since Meggitt has a vast number of defence contracts, the deal could be blocked from a national security standpoint.
If this were to happen, the Meggitt share price could quickly plummet back to where it was before the deal was announced. In this scenario, while the short-term pain would be unpleasant, over the long term, investors may be rewarded. However, with rising interest rates and a sizable lump of debt on its books, the odds appear to be stacked against the company.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies, assets, and strategies mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.
