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Ultra Electronics board to recommend £2.58bn Cobham bid

After being turned down in June, private equity owned Cobham has come back with a much larger offer.
July 23, 2021
  • The bid is a premium of 42 per cent to Ultra’s last closing price
  • ‘Put up or shut up’ date has been extended to 20 August

Aerospace and defence company Cobham has made an offer of £35 per share for Ultra Electronics (ULE). The deal would value the company at £2.58bn which equates to a premium of 42 per cent to Ultra’s previous closing price. It is a significant improvement on the £28 per share offer made by Cobham in June and the Ultra board said that it would recommended it to shareholders subject to the establishment of safeguards for its stakeholders.

In June, when the first offer was made, Cobham said it was interested in Ultra with the view to creating a “global defence electronics champion”. Back then, the IC explained that Ultra’s intelligence and communications business which includes Herley Industries – an electronic warfare specialist it brought for $265m in 2015 – will be particularly attractive for Cobham as it crosses over with its CAES division in the field of radio frequency and microwave technology.

Ultra Electronics' share price was up 33 per cent on Friday morning at roughly £33, indicating market confidence that the deal is likely to go ahead. Analyst Henry Carver at Peel Hunt agrees, writing that it is “an offer that shareholders cannot ignore”. Supporting that observation, Peel Hunt has raised its target price to 3,500p.

The deal will be controversial in some corners because it involves defence and Cobham, which was acquired by US private equity firm Advent in 2019, is under foreign ownership. As feared by some in 2019, Advent has since disposed of chunks of Cobham, most notably its air-to-air refueling business Cobham Mission Systems, which it sold to Eaton in February for $2.83bn. That deal came under a lot of scrutiny at the time. Since then, the government has passed the National Security and Investment Act which gives it more power to intervene in foreign takeovers.

To allow “the UK government appropriate undertakings in respect of national security”, the ‘put up or shut up’ deadline has been extended to 20 August 2021 and the deadline may be extended further with consent from the Takeover Panel and at Ultra’s request.