Proposed Acquisition by Parker-Hannifin Corporation of Meggitt PLC

Reference:

CCCS 400-140-2021-009

Notifying Party:

Parker-Hannifin Corporation

Notifying Date:

24 December 2021

Summary of transaction:

(i)        the names of the merger parties;

(a)          Parker-Hannifin Corporation (“Parker”); and

(b)          Meggitt PLC (“ Meggitt”),

(collectively, the “Parties”).

(ii)       a description of the transaction;

The notified transaction concerns the proposed acquisition by Parker of the entire issued and to be issued ordinary share capital of Meggitt (the “Proposed Transaction”).

(iii)      a description of the business activities of the merger parties worldwide and in Singapore;

Parker

Parker is a manufacturing company incorporated in Cleveland, Ohio, USA. It is listed on the New York Stock Exchange (handle: PH). Parker manufactures motion and control technologies and systems, and provides precision engineered solutions for a variety of mobile, industrial and aerospace markets. Parker operates in 50 countries, employing approximately 50,000 people and supplying approximately 464,000 customers.

The Proposed Transaction primarily concerns Parker’s Aerospace Systems Segment (referred to as “Parker Aerospace”). Parker Aerospace’s business activities in Singapore primarily relate to the sale of a range of Parker Aerospace products to original equipment manufacturers (“OEMs”), as well as aftermarket sales of its aerospace products and the supply of aftermarket maintenance, repair and overhaul (“MRO”) services for Parker Aerospace products.

Meggitt

Meggitt is a publicly limited company headquartered in Ansty Park, UK, and is listed on the London Stock Exchange (handle: MGGT). Meggitt is the parent company of the Meggitt Group whose principal activities are the design and manufacture of high-performance components and sub-systems for the aerospace and defence sector and selected energy applications.

Meggitt’s business activities in Singapore serve as a regional hub providing MRO services for the whole range of Meggitt aerospace products (as well as a small amount of aftermarket services for products produced by third parties).

(iv)     a description of the overlapping goods or services, including brand names;

The Parties overlap in the supply of the following aircraft components in Singapore:

(a) utility actuators;

(b) aircraft wheels and brakes;

(c) aerospace sensors;

(d) aerospace pneumatic valves; and

(e) aerospace seals (collectively, the “Overlapping Goods”).

(v)       a description of substitute goods or services;

Close substitutes for the Overlapping Goods supplied by the Parties would be equivalent products offered by other competing suppliers, such Raytheon Technologies Corp. / Collins Aerospace, Honeywell International, Inc., Safran S.A, Moog, Inc. and Woodward, Inc..

(vi)     Parker’s views on:

a.            definition of the relevant market(s);

The relevant markets for the CCCS’s consideration are no narrower than:

(a)          the market for the global supply of utility actuators;

(b)          the market for the global supply of AWB;

(c)           the market for the global supply of all aerospace pneumatic valves;

(d)          the market for the global supply of aerospace sensors; and

(e)          the market for the global supply of seals and small sub-components for aircraft,

collectively, the “Relevant Markets”.

b.            the way in which competition functions in this market;

Firms compete on price, distribution, service networks and procurement techniques. There are a range of factors that suppliers take into account when pricing products. Suppliers may sell the original product at cost, below cost or free of charge. Prices can also be influenced by the products used and an OEM’s specifications will often dictate the inputs and types of materials that will be needed to produce the component. A supplier might also conduct a competitive analysis on similar products supplied on different platforms or aftermarket products supplied on similar platforms and factor this into the price of a product.

c.             barriers to entry and countervailing buyer power; and

Barriers to entry

Barriers to entry to the Relevant Markets are not insurmountable. Most of the intellectual property that a new entrant would require is widely available. Many of the more complex technologies and components can be procured from third parties.

There are certain regulatory requirements under the Air Navigation Order (a subsidiary legislation under the Air Navigation Act, Chapter 6 of Singapore) which apply in relation to the supply and maintenance of an aircraft in Singapore. However, these regulatory requirements are not prohibitive or difficult to meet by global competitors in the Relevant Markets.

Countervailing buyer power

The Parties’ customers hold significant countervailing power. The Parties’ key customers are large, sophisticated and powerful companies that are generally in the driving seat to formulate the scope of the tenders. These customers are able to exercise significant negotiating leverage and employ a combination of strategies to discipline components suppliers.

Customers can and do sponsor new entry in response to unsatisfactory performance by incumbent suppliers.

d.            the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

Non-coordinated effects

The Parties submit that the Proposed Transaction will not give rise to any non-coordinated effects as the Parties' product ranges are largely complementary. Although the Parties each have some capabilities in similar product areas, in some cases, the Parties’ products are not functional substitutes even though they might have a similar use or be part of the broader product segment.

The aerospace components competitive landscape is highly fragmented with a diverse range of suppliers active, including many large suppliers who offer a broad range of components, as well as specialists who supply a narrower range of components but are often very strong competitors in their given area of expertise. The Parties will continue to compete with a number of large diversified aerospace companies operating in the market who will continue to act as an effective competitive constraint on the combined entity following the Proposed Transaction.

The Parties’ key customers are also large, sophisticated and powerful companies that are generally in the driving seat to formulate the scope of the tenders. These customers are able to exercise significant negotiating leverage and employ a combination of strategies to discipline components suppliers.

Coordinated effects

The Parties submit that the Proposed Transaction will not give rise to any coordinated effects for the following reasons:

(a)          all of the Relevant Markets will remain extremely competitive following the Proposed Transaction. The presence of a multitude and range of existing competitors of varying scales of operations means that it would not be possible for the merged entity to arrive at an alignment or coordination of its behaviour with other competitors. Any prospect of collusion is untenable or unsustainable; and

(b)          customers generally have the knowledge and expertise to make well-informed comparisons of alternatives available in the Relevant Markets, which facilitates the process of switching between different suppliers in response to price changes or any other reason. The Parties’ key customers are large, sophisticated and powerful companies that hold significant buyer power and are generally in the driving seat to formulate the scope of the tenders. Customers are able to exercise significant negotiating leverage and employ a combination of strategies to discipline components suppliers.

Vertical effects

The Parties submit that the Proposed Transaction does not give rise to any substantial lessening of competition in relation to vertical effects. In relation to input foreclosure, the Parties are not major suppliers to each other or to downstream aerospace component competitors and customers have a range of alternative sources of supply available to them.

 Consultation:

Interested parties are invited to submit their views on the Proposed Transaction. When submitting confidential information, interested parties should take note of the procedures outlined in CCCS Guidelines on Merger Procedures 2012.

Comments should reach CCCS no later than 24 January 2022, 5 p.m.. Please write or email your comments

(titled: Comments on Proposed Acquisition by Parker-Hannifin Corporation of Meggitt PLC) to:

Email:   cccs_feedback@cccs.gov.sg

Attention:  Leow Rui Ping, Senior Assistant Director (Policy & Markets)

Supporting Documents:

Interested third parties may request in writing to obtain more information on the Proposed Transaction.

Please write or email your submission (titled: Comments on Proposed Acquisition by Parker-Hannifin Corporation of Meggitt PLC) to the above contact details.