The investment will secure Sheffield Forgemasters’ role as a critical supplier to the next generation of UK Defence programmes, while continuing the firm's 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 £2.56m. The transaction has the support of all the company's major shareholders who have agreed to sell their shares to MoD.
The transaction is subject to a three week offer period and will be completed on 19 August 2021.
In a statement, Sheffield Forgemasters said: “The agreement is an important milestone for the company, the Sheffield City region and UK manufacturing, recognising our status as a strategic national asset and providing security for the business and its employees.
“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 £400m 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 said that it and 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.
The company said securing defence output is the priority moving forward, but the Group will continue to operate in commercial markets with its existing equipment and also look to exploit opportunities that may arise from the UK Government’s net zero carbon agenda, including the offshore wind and civil muclear markets.
The MoD will acquire 100% 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.
Sheffield Forgemasters 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.
The company concluded: “We would like to thank our customers, suppliers and employees for their continued support as we take the company forward with renewed potential for the future.”