U.K. to Review Advent’s Ultra Takeover on Security Grounds

(Bloomberg) -- The British government ordered a probe into the proposed purchase of defense-technology specialist Ultra Electronics Holdings Plc by U.S. buyout firm Advent International Corp., citing national security concerns.

Business Secretary Kwasi Kwarteng issued a Public Interest Intervention Notice regarding the 2.57 billion-pound ($3.6 billion) agreed takeover by Advent’s Cobham Ltd. arm, according to a statement Wednesday.

The Competition and Markets Authority has until Jan. 18 to conduct its examination. While that means it could report after a law introducing tougher powers to scrutinize deals comes into force, the government said Thursday the Ultra case will be determined according to existing legislation.

Ultra said Monday it had approved an all-cash acquisition by Advent, sparking an outcry among some politicians and unions, who say the U.K. firm’s role in producing sonars and electronics for Britain’s nuclear submarines make it a vital asset. Similar concerns surround bids for aerospace supplier Meggitt Plc by two other American groups, Parker-Hannifin Corp. and TransDigm Group Inc.

Paul Everitt, ex-head of U.K. defense and aerospace trade body ADS, told BBC radio the government was right to step in and must now set “precedents and markers” for future bids. He questioned whether a private-equity owner with a “buy, break and sell” model is ever appropriate for a crucial defense business.

The Unite union said the intervention was a step in the right direction but that the government “must not just talk tough” and should now block both the Ultra and Meggitt sales.

Shares of Ultra were priced 1.6% lower at 33.12 pounds as of 12:53 p.m. in London Thursday in their first trading since the announcement. The stock was already below the 35 pounds purchase price agreed with Advent after Kwarteng told Bloomberg earlier this week that he planned to look more closely at ongoing defense deals.

Sensitive Information

Referencing the decision to order the CMA probe, the minister said on Twitter that “the U.K. is open for business, however foreign investment must not threaten our national security.” In a later tweet he said he’d lodged an order in parliament preventing Ultra from disclosing sensitive information to Cobham on work it does for the British government and armed forces.

A spokesman for Ultra declined to comment on the U.K. move, while pointing to a statement earlier this week from Chairman Tony Rice saying the company’s board is “comfortable” that legally binding undertakings to the government will protect stakeholder interests.

Cobham also declined to comment, while reiterating that it will engage pro-actively with U.K. authorities.

Breakup Controversy

Britain conducted a similar review of Advent’s proposed Cobham purchase before signing off on the deal in December 2019, saying it was satisfied with remedies proposed to address security concerns.

The purchase went through in January last year and has remained controversial, with the private-equity buyer selling off divisions so that Cobham now has no U.K. manufacturing presence, leading its founding family to accuse the government of abandoning a national asset.

A government spokesperson confirmed that like the Cobham deal, the Ultra takeover will be examined under the Enterprise Act 2002 rather than the new National Security and Investment Act, which widens government powers to intervene on security grounds and is due to come into force in January.

“Any merger which is subject to a national security intervention under the Enterprise Act must be completed under that same act,” the spokesman said. “It cannot be ‘switched’ or subsequently called in.”

U.K. defense assets have become magnets for a spate of foreign bids as private-equity firms tap into free-flowing capital and British stocks trade at a discount to U.S. and European peers. Targets include Senior Plc, which rejected a $1.2 billion bid from Lone Star Funds as too low.

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