Meggitt PLC

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Meggitt PLC

6 Poole Road
Wimborne
Dorset BH21 1JH
United Kingdom
Telephone: (1202) 847847
Fax: (1202) 842-478
Web site: http://www.meggitt.com

Public Company
Incorporated: 1947 as Willson Lathes
Employees: 4,200
Sales: £346.5 million (1999)
Stock Exchanges: London
Ticker Symbol: MGGT.L
NAIC: 54171 Research and Development in the Physical, Engineering, and Life Sciences; 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; 336399 All Other Motor Vehicle Parts Manufacturing; 336411 Aircraft Manufacturing; 336413 Other Aircraft Parts and Auxiliary Equipment Manufacturing

From obscure origins, Meggitt PLC has grown into a global aerospace supplier. Its subsidiaries manufacture instrumentation and other products found in a wide spectrum of military and civil aircraft. The company’s purchase of U.S.-based Whittaker in 1998 has given it a significant aftermarket business as well. Meggitt also produces remote-operated target aircraft for the military, sensors for the automobile industry, energy industry equipment, ticketing systems, and point-of-sale systems for fuel stations.

Engineering Origins

Meggitt PLC began as a small, family-owned engineering firm in Dorset, England. Willson Lathes, a publicly listed machine tool manufacturer based in Halifax, acquired the company in a reverse takeover in 1964. Willson Lathes had gone public in April 1947.

Eventually, Meggitt began to flounder. It lost £180,000 on sales of less than £4 million in 1983. Nigel McCorkell and Ken Coates, directors at nearby Flight Refuelling Ltd., came to see the company as a prospective launching pad for future acquisitions. Together with the investment group 3i (Investors in Industry), they accumulated a 29.9 percent share in Meggitt in a management buy-in.

McCorkell and Coates soon turned around the demoralized, money-losing firm. Coates, an engineer himself, had run a number of different companies. McCorkell was a chartered accountant and former merchant banker. They sold off stockpiled product and invested in expanding Meggitt’s metal fabricating business as they aimed for growth sectors in the engineering field. Removal of management constraints allowed the gas filtration business to streamline itself. Meggitt posted a profit of £354,000 for fiscal 1984 after three years of losses.

Then the acquisition spree began. Meggitt bought Insley, a cutting tools distributor, for £2.5 million in stock and cash in September 1984. A sale and leaseback arrangement sweetened the deal. Soon after, Meggitt paid just £1 for the insolvent engineering firm Filtration & Transfer, for which it had previously offered £1 million.

This series of acquisitions, including that of the diversified aerospace engineering firm Negretti, magnified Meggitt’s stock value and competitive profile. The Negretti deal cost £16 million in shares. Although the company was a large catch, Negretti’s process control operation was losing money, and the profitable Negretti units lacked sufficient financial controls. McCorkell and Coates focused the firm on its core business, aircraft instrumentation, and set out to restore profitability to the process control line. Expansion into U.S. markets was another key point in the recovery plan.

Meggitt Holdings announced profits of more than £2 million for the fiscal year ending October 31, 1985, on turnover of £28 million. Towards the end of 1985, Meggitt bought Holsworthy for £3.5 million in cash and stock. Holsworthy produced film circuitry; the purchase increased Meggitt’s sales by 75 percent.

Taking Over Bestobell in 1986

In 1986, Meggitt Holdings acquired the Bestobell engineering group, which had three times Meggitt’s annual sales, for £86 million in a hostile takeover. Coates and McCorkell were joined by Sir Owen Green, whose giant BTR pic industrial conglomerate had been stuck with a 29 percent minority holding after a failed £29 million takeover bid in 1979. Owen received 18 percent of the new Meggitt in exchange for his share of Bestobell.

After taking over Bestobell, Coates and McCorkell cut unprofitable operations in remote locations, such as Africa. Consistent with its emphasis on U.S. sales, Meggitt acquired two American firms for its Bestobell subsidiary. The company spent $40 million in 1988 to buy Plastic Fabricating of Kansas and New York’s Ragen Data Systems.

Meggitt Holdings posted pretax profits of £16 million for the year ending December 1987. Turnover fell to £167 million as a result of selling off most of Bestobell’s overseas assets. Aerospace and defense, the largest division, accounted for £73 million, boosted by a major U.S. Department of Defense contract for Negretti Aviation. At the time, Meggitt was arranged in four divisions: engineering distribution, aerospace and defense systems and components, energy and petrochemical industry equipment, and electronic components and circuitry. Controls would be the fifth.

In September 1988, Meggitt acquired Microsystems Group for £33 million, guiding the electronics business into the higher margins of ticketing machines, taxi meters, and telephone-logging systems. It quickly disposed of its unprofitable Raitel subsidiary, which manufactured security telephones. Meggitt bought well established German controls installer Sunvic, while it allowed management to buy out the traditional machine tools line.

The USH Fiasco of 1989

A failed attempt to buy United Scientific Holdings (USH) in the fall of 1989 left a lingering chill in the minds of analysts. USH was best known for its Alvis subsidiary, the armored vehicle manufacturer based in Coventry. The deal would have been even larger than the Bestobell takeover. Meggitt canceled at the last minute, bringing its motives into question. USH manufactured night vision equipment and armored vehicles; perhaps Meggitt thought twice about prospects in the limited defense market. A profits warning from USH, though, may have been enough cause for Meggitt to abandon its hostile takeover bid. USH’s Avimo Taunton plant was locked into money-losing contracts to supply the Ministry of Defence with sight systems.

On the day Meggitt’s bid was launched, USH announced it planned to sell its U.S.-based Optic-Electronic Corporation (OEC) subsidiary to Imo Industries of New Jersey. Meggitt opposed the sale and U.S. regulators blocked it on competition grounds. However, OEC’s proxy board—required when overseas companies own defense suppliers in the United States—had secretly established $2.5 million (£1.6 million) worth of golden parachutes for themselves. In addition, USH’s share price fell well below the value of Meggitt’s offer.

Meggitt did complete a smaller acquisition in November 1989. It bought Swindon-based automotive supplier Citec from BICC, an international cables and construction group, for £5 million in cash.

Meggitt posted pretax profits of £23.5 million on sales of £302 million in 1991. Both figures were flat from the year before in spite of the recession. Its most profitable division was Aerospace, while Controls survived in a highly fragmented market.

Meggitt cut nearly 1,200 jobs in 1991 and 1992. A rights issue in November 1991 gave the company plenty of cash for acquisitions. Meggitt arranged to buy U.S.-based sensor manufacturer Endevco from Allied-Signal for US$53 million (£29 million). It bought Micrelec, an unprofitable maker of electronics for the energy industry in the spring of 1992 for £17 million and also acquired the lucrative gas processing equipment manufacturer Howmar.

BTR sold its 17.2 percent stake in Meggitt in April 1993. During their six-year relationship beginning with the Bestobell takeover, Meggitt’s sales increased from £28 million to £327 million, although earnings had been flat for a few years.

Sir Owen and BTR bailed out just in time. By 1994, the vagaries of the defense market had caught up with Meggitt. Intense competition in the commercial aerospace market also depressed sales. The company continued to trim its workforce, to under 6,000, and sold off or integrated many of its subsidiaries, eradicating any lack of focus among its somewhat diversified holdings. The company sought to leave the energy sector entirely. Sales were £345.5 million in 1994, producing profits of just £14.8 million. Plastic Fabrication, a U.S.-based subsidiary, had a particularly disastrous year. It lost its accreditation from Boeing. Meggitt fired the entire management team and began looking for a buyer.

Restructuring in 1995

As Ken Coates stepped back due to ill health, Mike Stacey moved from managing the Aerospace and Electronics divisions to becoming group managing director. The TT Group, a conglomerate also known for its acquisitive ways, bought a 4.2 percent stake in Meggitt in February 1995, raising the threat of a takeover. However, TT disposed of the stake by October.

Meggitt restructured in 1995, closing or selling 16 companies and arranging the rest into special business units (SBUs) led by “Stacey’s Boys,” managers appointed by new CEO Mike Stacey. Nigel McCorkell resigned as deputy chairman in January 1996, although the timing, said some, “was not of his choosing.”By the summer, he had taken a position as chairman at newly created Cork Industries.

Company Perspectives:

The Meggitt name provides you with the assurance of innovation and quality across its businesses.

Profits at the controls division rose considerably in 1995, though, thanks in large part to write-offs, Meggitt lost £21.5 million on sales of £358.2 million. This was reversed in 1996 with profits of £24.3 million on sales of £256.3 million. Aerospace profits rose 40 percent.

In the fall of 1996, Meggitt bought Cartwright Electronics, a U.S.-based electronic target scoring systems manufacturer. The acquisition immediately boosted sales at Meggitt’s Target Systems Division. Meggitt, now firmly oriented toward the U.S. market, had become Boeing’s main supplier of elastomeric seals for its 777 aircraft. Forty percent of its products were manufactured in the United States. Meggitt’s new Secondary Flight Display System (SFDS), which combined attitude, altitude, and air speed indicators in a single liquid crystal display, found acceptance in a variety of U.S. military cargo aircraft. Production of SFDS systems reached 2,000 in February 2000.

Meggitt started 1998 with a $100 million order for such backup instrumentation from Boeing. It then expanded that market to small aircraft. Pretax profits had risen 30 percent to £31.5 million in 1997 as sales rose four percent to £265 million. Although hurt by exchange rates, the electronics division was also strong, particularly in sensors for pacemakers.

In 1998, Meggitt bought Vibro-Meter SA, a complement to its Endevco business. Vibro-Meter was strong with Airbus, while Endevco had enjoyed good relations with Boeing. Pre-tax profits for the year reached £35.4 million on sales of £293.9 million.

Meggitt bought Whittaker Corporation for US$380 million (£237 million) in June 1999. Whittaker was a NYSE-listed diversified aerospace supplier to virtually every Western aircraft manufacturer. In addition to greater access to markets and the potential for millions of dollars of savings in synergies, Whittaker offered a strong aftermarket parts business as a buffer during cyclical down times, and helped the company remain relevant in the face of impending consolidation among smaller aerospace suppliers.

In the first half of 1999, delivery of 6,000 ticket machines to London Transport boosted profits in the electronics division 60 percent, while Boeing’s cancellation of the MD90 program dampened aerospace results. Industrial controls also saw sales fall due to declining oil industry spending. The company’s Vibro-Meter unit won a contract to outfit U.S. Army helicopters in conjunction with BF Goodrich Aerospace. Meggitt sold off its money-losing Mobrey industrial controls business to Rox-boro Group PLC for £22.3 million in cash. True to its predictions, results improved in the last half of 1999, resulting in (preliminary) pretax profits of £50.7 million for the year on a turnover of £346.5 million.

Principal Divisions

Aerospace; Electronics.

Principal Operating Units

Aerospace Systems; Aerospace Equipment; Meggitt Defence Systems; Electronic Sensors; Heatric; Electronic Systems.

Principal Competitors

Cobham plc; Honeywell Inc.; Sextant Avionique; Smiths Industries PLC.

Key Dates:

1947:: Machine tool manufacturer Willson Lathes begins trading shares publicly.
1964:: Willson Lathes accomplishes reverse takeover of the Meggitt firm.
1983:: Nigel McCorkell and Ken Coates lead management buy-in.
1984:: Meggitt begins acquisition spree.
1986:: With help of BTR, Meggitt accomplishes hostile takeover of much larger Bestobell.
1989:: Aborted bid for USH chills analysts.
1993:: BTR sells its stake in Meggitt after a few years of lackluster results.
1995:: New management, led by Mike Stacey, is appointed as Meggitt restructures.
1998:: Whittaker buy bolsters Meggitt’s prospects.