Cobham sets sights on UK rival Ultra Electronics

Cobham, the private-equity backed UK aerospace and defence group, is considering a bid for rival Ultra Electronics in a deal that it said would create a “global defence electronics champion”.

The company, which was itself acquired for £4bn by US buyout group Advent International last year, said on Friday that it was examining a “number of structures” to effect a combination with Ultra. 

These included a takeover offer for its London-based competitor or reversing into Ultra in exchange for new shares in a combined group. 

Cobham said that both companies had a “long heritage as innovators, and share advanced complementary capabilities delivering mission critical solutions to the US, UK and other key allies”. 

The two groups are key suppliers of components to the Eurofighter Typhoon aircraft and the F-35 fighter jets which will be deployed on the Royal Navy’s two new aircraft carriers.

Cobham’s interest elicited a strongly-worded statement from Ultra which said it had received no proposal from its suitor. It said it had been at “very early stages of exploratory discussions around a possible combination of some or all” of its communications assets with those of Cobham’s electronics business, CAES.

Ultra added that, within the scope of those talks, Advent and Cobham had confirmed that they were “not actively considering an offer for Ultra”. It said it had now terminated those talks.

Shares in Ultra jumped almost 7 per cent in late trading on Friday to £23, valuing the company at £1.64bn after news of Cobham’s interest broke.

Ultra is in the midst of a turnround under chief executive Simon Pryce. The company managed to shrug off much of the impact of the coronavirus pandemic, reporting in March a 14 per cent rise in pre-tax profits to £103m for the year to the end of December. It has seen increased demand for its submarine hunting equipment and other kit used in cyberwarfare.

News of Cobham’s interest in Ultra adds to the recent push by private equity groups, which have emerged from the pandemic flush with cash, to acquire some of the best-known names on the UK stock market.

US firm Clayton, Dubilier & Rice has made a bid to take over the supermarket chain Wm Morrison. Lone Star earlier this week walked away from a possible offer for Senior after being rebuffed by the FTSE 250 aerospace and defence parts supplier.

Overall, private equity bids for UK-listed companies have amounted to £21bn this year, according to Refinitiv. 

Advent’s takeover of Cobham was opposed by the family of its founder as well as several former executives of the company who raised concerns over what they said was an apparent lack of scrutiny from the government. The company’s pioneering air-to-air refuelling technology is used on all western fast jets and there were concerns that Advent would break up the group.

Opponents of the deal have pointed out that Advent has since gone on to sell a number of Cobham’s businesses, including the air-to-air refuelling technology.

Advent committed to a series of undertakings at the time of the purchase which it has said it has continued to comply with.

Cobham said there was no certainty that any combination would result, nor that an offer would be made. The company has until July 23 to announce a firm intention to make an offer for Ultra or walk away.