Cobham’s $5 Billion Sale to Advent Sparks U.K. Defense Probe

(Bloomberg) -- U.K. defense contractor Cobham Plc’s planned $5 billion takeover by Boston-based Advent International will be reviewed for its potential impact on British national security, the second high-profile private-equity deal to attract government scrutiny since July.

Business Secretary Andrea Leadsom on Wednesday said competition regulators have until Oct. 29 to evaluate whether the transaction is in the public and national interest. Advent said it would cooperate with the review.

Cobham’s $5 Billion Sale to Advent Sparks U.K. Defense Probe

The decision follows a similar move by the government to examine a planned $3.4 billion sale of satellite operator Inmarsat Plc to a group of funds. It also highlights how Brexit has depressed valuations of U.K. industrial assets and encouraged some foreign buyers to pursue deals they may previously have avoided because of regulatory hurdles.

Cobham investors on Monday backed the U.S. firm’s bid with a 93% majority after critics including Lady Cobham, daughter-in-law of the company’s founder, campaigned for it to be rejected. Members of the U.K. Parliament’s Defense Select Committee had also called for the government to intervene.

While Cobham is best known as the world’s biggest supplier of air-to-air refueling systems used to keep military planes airborne, the most sensitive part of the company’s portfolio concerns converted business jets deployed as simulated targets in fighter trials for the Royal Air Force, according to Sandy Morris, a defense and aerospace analyst at Jefferies International.

“It’s right that the U.K. government performs this scrutiny but I don’t see anything in there that could threaten the deal and couldn’t easily be disposed of if necessary,” Morris said.

Military Business

Like Cobham, Inmarsat also has a military-related business. It helps with British border security and provides communications for the armed forces. The government accepted a pledge to keep Inmarsat’s headquarters in the U.K. and continue with research and development in the country. The satellite operator has said it expects the deal to close in the fourth quarter.

The government’s probe into the Cobham deal also has parallels with scrutiny of the takeover of aerospace manufacturer GKN by investment group Melrose Plc last year, Morris said. In that case the bid was hostile and customers including Airbus SE had expressed concerns about the transaction, he added. The deal was still cleared.

Cobham shares traded 0.5% lower at 159.70 pence as of 11:52 a.m. in London. The agreed takeover by Advent is worth 165 pence a share in cash.

It’s rare for Britain to block deals on national security grounds, and the timing is delicate as Prime Minister Boris Johnson promises a quick free-trade deal with the U.S. as he seeks to push through Brexit. The U.S. in turn wants the U.K. to block Huawei Technologies Co. equipment from new 5G mobile networks, threatening to withhold intelligence sharing.

Cobham Chief Executive Officer David Lockwood told reporters on Monday that the company will be able to leverage Advent’s U.S. ties to pick up contracts across the Atlantic.

For its part, the private-equity firm said Wednesday it’s “committed to being a responsible steward of Cobham, encouraging its future growth and success.”

©2019 Bloomberg L.P.

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