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Sheffield Forgemasters to be acquired by the MoD
Sheffield Forgemasters’ shareholders have agreed to sell its entire share capital to the Ministry of Defence (MoD) to support a substantial recapitalisation of its defence-critical plant, equipment and infrastructure necessary to secure the delivery of components into future MoD programmes.
The intervention will secure the company’s role as a key supplier into the MoD for the long-term and is structured to invest substantial new capital into the modernisation of assets, including plans for a replacement heavy forge line and building, a flood alleviation scheme and major machine tool replacements.
The MoD intends to invest up to £400m into Sheffield Forgemasters over the next 10 years to support defence outputs. The government said the acquisition has been assessed as the best value for money for the tax payer due to the unique capabilities and circumstances, with the immediate cost of the acquisition at £2.56m for the entire share capital of the company, plus debt assumed.
The company’s main driver of revenue and profitability over recent years has been manufacturing specialist forgings and castings for submarine platforms and surface vessels as a supplier to Rolls-Royce, BAE Systems and Babcock International, who have provided guarantees to support the financing of the company. With the company’s existing credit facilities due to expire in December and significant investment required for it to be a reliable supplier into MoD, the intervention provides the financing necessary to place the company on a secure footing.
David Bond, CEO at Sheffield Forgemasters, said: “The agreement to bring the company under the ownership of the MoD provides a more secure future for the business and its people. The MoD’s intention is to invest up to £400m over the next 10 years to replace defence-critical equipment and infrastructure as we recapitalise our productive capacity, positioning the company 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 acquisition marks the culmination of a process, started two years ago, that enables us to be a reliable and secure supplier to defence for the long-term.”
Steve Hammell, CFO at Sheffield Forgemasters, added: “The board of directors at Sheffield Forgemasters is unanimous in its support for the terms of the acquisition and is strongly of the view that the deal is in the long-term interests of all stakeholders of the business, including shareholders, employees, customers, suppliers, the local community and the Sheffield City region. We have secured the support of our major shareholders, who have agreed to sell their shares to the MoD at a price of 121 pence per share, equating to total consideration of £2.56m.”
“The transaction also involves a refinancing of the company’s credit facilities with the financial guarantees provided by Rolls-Royce, BAE Systems and Babcock falling away. We will now enter an approved offer period with completion of the deal to follow in 3 weeks time. We recently announced the purchase of a second hand 13,000 tonne forging press from Japan and will move forward with the recapitalisation programme to renew defence-critical infrastructure.”
Sheffield Forgemasters will operate under the leadership of its current executive directors and senior management, supplemented by the appointment of two further non-executive directors including one from UK government.
David Bond highlighted the future ambitions of the business: “Although the MoD’s priority is to secure defence outputs, we will continue to operate in commercial markets with our existing equipment and will also look to exploit opportunities that may arise from the UK government’s net zero carbon agenda, including off-shore wind projects and the civil nuclear market.”
He concluded: “Sheffield Forgemasters has now established a base for a sustainable future. These are exciting times for the company as we enter a new chapter in its 200-year history alongside the Ministry of Defence.”