UK Sheffield Forgemasters said on 28 July that it is being acquired by the Ministry of Defence (MoD) “to support a substantial recapitalisation of our defence-critical plant and equipment over the next 10 years”. The investment will secure its role “as a critical supplier to the next generation of UK Defence programmes, while continuing our independent commercial activities, serving markets such as civil nuclear, oil & gas, power generation, renewables and steel processing”.
The MoD has agreed to buy the company’s entire share capital at an offer price of 121 pence per share, equating to total consideration of GBP2.56m ($3.56m). “The transaction has the support of our major shareholders who have agreed to sell their shares to MoD,” the company said. The transaction is subject to a three week offer period and will be completed on 19 August 2021.
In order to modernise the company’s plant and equipment to support its role as a long-term supplier to UK Defence, the transaction is structured to inject up to GBP400m of new investment over the next 10 years into defence-critical assets, including plans for a new heavy forge line and building, a flood alleviation scheme, major machine tool replacements and a site-wide HV upgrade. This is expected to retain and create new highly skilled manufacturing jobs within the Sheffield City region.
Sheffield Forgemasters and its shareholders are not able to fund an investment of this size and so this transaction marks the completion of a process started two years ago by the Board to develop a strategy for the business that enables it to be a reliable and secure supplier to defence for the long-term. The investment plan will be funded by direct equity from MoD.
“Whilst securing defence output is the priority moving forward, the Group will continue to operate in commercial markets with its existing equipment and will also look to exploit opportunities that may arise from the UK Government’s net zero carbon agenda, including the off-shore wind and civil nuclear markets.”
The MoD will acquire 100 per cent ownership of Sheffield Forgemasters International Limited (SFIL), the parent company of the Sheffield Forgemasters Group. There will be no change to the corporate structure of the group and all subsidiary companies, including Sheffield Forgemasters Engineering Limited and Sheffield Forgemasters Steel Limited, will remain wholly owned by SFIL. There will be no impact on the performance of your contract with Sheffield Forgemasters and no need to vary or amend such contract.
The transaction also involves a refinancing of the company’s credit facilities with a new working capital facility to be provided by MoD. As a result, the financial guarantees provided by Rolls-Royce, BAE Systems and Babcock will fall away upon completion of the transaction. Following the takeover, the company will operate under the leadership of the existing executive directors and senior management, supplemented by the appointment of two further non-executive directors including one from UK Government. David Bond, Sheffield Forgemasters’ CEO, said the agreement would provide a more secure future for the business and its workers.
Sheffield Forgemasters is one of UK’s oldest companies, beginning the 1750s as a small blacksmith’s forge before it became a commercial enterprise in 1805. It has faced difficulties in recent years as a result of competition from China and India and more recently the coronavirus pandemic. Chief Financial Officer Steve Hammell said the company hoped to secure work on small modular reactors and has provided technical support to the consortium, led by Rolls-Royce, its largest customer.