On the go: The trustee of the Meggitt defined benefit scheme has agreed a funding plan with Parker Hannifin as part of its deal to acquire the British aerospace and defence markets components company.
Parker Hannifin — Meggitt’s long-time US rival — offered a package totalling £6.3bn, including commitments to maintain a strong UK presence for the defence and aerospace company.
Following “constructive discussions”, the Trustee of Meggitt UK DB Pension Plan and Meggitt entered a legally binding memorandum of understanding on Monday, setting out their agreement on future funding.
The MoU includes an open-ended, uncapped parent company guarantee from Parker Hannifin for all present and future employer obligations and liabilities of the scheme when the acquisition is finalised.
The sponsoring employer will also pay a £25m cash lump sum to the scheme within one month of the buyout’s completion, and £35m a year in employer contributions until the statutory funding deficit is eliminated or the actuarial valuation as of April 5 2024 is completed.
Parker Hannifin has also committed to “appropriate information sharing provisions” with the trustee.
In its announcement about the acquisition, the company said it “recognises the importance of upholding Meggitt's pension obligations and ensuring that its pension schemes are appropriately funded in accordance with statutory and trust deed requirements”.
The trustee has stated that based on the information available and taking into account the undertakings provided by Parker Hannifin, it has no reason to believe that the takeover would be materially detrimental to the scheme’s ability to meet its liabilities or the likelihood of accrued benefits being received.
According to Meggitt’s 2020 annual reports and accounts, the UK funding position on December 31 2020 was approximately £135m lower than that projected in the 2018 valuation, which was principally due to the significant fall in bond yields since the valuation.
The funding shortfall of Meggitt’s UK and US DB pension funds increased last year, with the combined deficit reaching £295.4m, when assets stood at £1.2bn and liabilities at £1.5bn. In 2019 the schemes had a funding deficit of £267.9m, £1.3bn in liabilities and £1.1bn in assets.
The Meggitt UK DB Pension Plan is closed to new members and announced earlier this year it would close to future accrual from April 6 2021, following a consultation process with employees.
Following the Covid-19 outbreak, Meggitt agreed with the trustees to defer four months of deficit contributions amounting to £9.6m, stating that these would be made over the rest of the recovery plan to August 2023. The company restarted deficit contributions in the third quarter of this year.
Parker said it does not intend to make any changes to Meggitt’s other pension schemes, which include defined contribution pension arrangements in the UK and both DB and DC funds in other jurisdictions.
The acquisition of Meggitt by Parker is the latest example of American companies bidding for British companies, which has been driven by cheap valuations partly due to the pandemic and Brexit.
