US-owned Cobham close to takeover of UK defence manufacturer Ultra

Defence manufacturer Ultra Electronics is on the verge of accepting a takeover offer from rival Cobham, in a move that would further extend the private equity industry’s grip on the British aerospace sector.

Ultra said on Friday it had received a takeover bid of £35 per share from Cobham, which is owned by American private equity group Advent. The bid would value Ultra at £2.6bn, 60% higher than its valuation when Cobham first made a bid last month at the lower price of £28 per share.

Ultra’s share price surged by 33% op Vrydag, from £24.70 to an all-time high of £33. That gave Ultra, a member of the FTSE 250 index of mid-cap companies, a valuation of £2.3bn, up from £1.8bn on Thursday evening before the new bid was revealed.

It is the latest example of a private equity shopping spree in the UK, fuelled by rock-bottom borrowing costs and the perceived undervaluation of British companies. In the first half of 2021, private equity firms announced deals for UK companies (both takeovers and minority stakes) with a combined value of £41.5bn, according to Dealogic, a data company.

Supermarket chain Asda, roadside assistance company AA and infrastructure investor John Laing are among the prominent British companies to be bought out by private equity firms in 2021, while another supermarket, Morrisons, is also close to being taken over by a consortium led by US private equity investors.

Ultra’s board said it was “minded to recommend” the new bid. Egter, a takeover would likely be controversial as it would hand yet more of the UK defence industry to foreign owners. Ultra makes sonobuoys – floating sonar detection devices dropped from submarine-hunting planes – and other super-sensitive sonar equipment for the Royal Navy, as well as electronic control systems for civil and military aircraft.

The UK government has extensive powers to block takeovers on national security grounds. Egter, Dit waved through Advent’s controversial takeover of Cobham in 2019, with the private equity firm only required to undertake to keep some jobs as well as research and development spending in the UK.

The Cobham takeover has proven particularly controversial because Advent has rapidly moved to break it up, despite the limited assurances it made to the government.

The Cobham family has strenuously objected to Advent’s actions. Nadine Cobham, whose late husband Michael Cobham ran the company and was the son of the founder and renowned aviator Alan Cobham, earlier this month told the Financial Times that Advent “dismantled the company and sold off the parts”.

Ultra said a potential recommendation that shareholders vote for the takeover would be “subject to consideration and satisfactory resolution of other terms and arrangements, including the establishment of safeguards for the interests of Ultra’s stakeholder groups”.

It added that Cobham, controlled by Advent, has indicated that it will offer the UK government “appropriate undertakings in respect of national security”.

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