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Cobham bid for Ultra resurrects UK sovereignty concerns

27th July 2021 - 12:19 GMT | by Harry Lye in London

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Cobham aims to create a ‘global defence electronics champion’ by acquiring Ultra Electronics (pictured is a rendering of an Ultra Electronics sonobuoy). (Photo: Ultra Electronics.)

Ultra Electronics board said it was ‘minded’ to recommend a multibillion-dollar buyout offer from Cobham to shareholders. The possible deal has raised concerns from some corners over the acquisition of UK defence companies by foreign firms.

Cobham has set in motion the potential takeover of UK-based Ultra Electronics, offering $3.57 billion (£2.58 billion) for the company.

The non-binding offer is worth $48.37 (£35) per Ultra Electronics share, which value rose at the news of the offer.

The UK government is aware of the proposed deal, with a spokesperson telling Shephard: ‘While this is a commercial matter for the companies involved, we are closely monitoring the transaction.’

In a notice confirming receipt of the offer, Ultra Electronics stated that its board of directors would recommend the deal to shareholders, 'subject to consideration and satisfactory resolution of other terms and arrangements, including the establishment of safeguards for the interests of Ultra’s stakeholder groups'.

Cobham indicated to the Ultra board that it ‘is minded’ to offer the UK government the appropriate undertakings ‘in respect to national security’.

A Cobham spokesperson said: ‘Cobham continues to see strong industrial logic to the combination. During our discussions, we have offered assurances that appropriate national security undertakings will be offered to the UK Government. We look forward to continuing our discussions with the Board of Ultra, with the view to creating a global defence electronics champion.’

The proposed deal has raised concerns about the sale of UK defence contractors to overseas owners.

Labour MP and member of Parliament’s defence committee, Kevan Jones, told Shephard: ‘Ultra leads the world in deployable water sensors, torpedo defence systems and electronic warfare technology, all of which are deeply tied to our defence against underwater threats.

‘The Government cannot stand by once more whilst defence technology is offshored. The Government must urgently consider acquiring a golden share in Ultra.’ 

Buying a golden share would give the government a veto.

Under the Enterprise Act of 2002, the UK government can intervene in mergers on public interest grounds, including national security — but there are currently no specific controls on foreign investment in the UK. 

Political involvement is limited, and decisions tend to be taken on technical competition grounds by the Competition and Markets Authority.

Once it comes into force in January 2022, the National Security and Investment Act will give the government stronger powers to investigate and intervene in mergers and acquisitions that could threaten national security.

Until then, the government can legally intervene on public interest grounds only if a deal qualifies as a 'relevant merger situation' (which, in most cases, means the transaction meets a UK turnover or share of supply test).  

Cobham itself was bought by US-based private equity fund Advent International last January for $5.2 billion, following approval from the UK government. The new owners proceeded to divest several areas of the business.

Cobham Aviation Services was sold to Draken International in late 2020. This year, US-based Eaton acquired Cobham Mission Systems for $2.8 billion. The company has also sold off its shares in the Airtanker consortium and divested its Aerospace Connectivity division.

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