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Australian submarine deal boosts Ultra Electronics takeover prospects

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Submarine - PA/PA Wire
Submarine - PA/PA Wire

A new security pact between Britain, America and Australia has weakened the rationale for blocking the US private equity takeover of Ultra Electronics, which supplies kit for Britain's nuclear submarines, experts have said.

Advent International's pursuit of Ultra is thought to be more likely to succeed after the three countries agreed to share sensitive data under the so-called Aukus agreement.

Ministers last month ordered a national security review into the £2.6bn takeover of Ultra amid concerns over top-secret technology developed by Ultra for the Royal Navy falling into another country's hands.

Ultra makes electronic equipment which is so vital for Britain's Trident nuclear deterrent that it was feared security could be endangered even if the company was owned by a business in a close ally such as the US.

However, the new pact means that the UK and US are now committed to sharing even more information than before. The three countries will be collaborating on nuclear propulsion technology to help the Royal Australian Navy build attack submarines.

Peter Sandeman, an analyst at Navy Lookout, said: “The Aukus agreement shows we are getting closer militarily and that probably means that the ownership of Ultra by a business in an Allied nation is more acceptable.

“We are getting closer to Americans all the time selling industrial businesses to the US and it is obviously not as catastrophic as these businesses being taken over by the Chinese or even European owners.”

Henry Carver, an analyst at Peel Hunt, said: “It should allay some concerns around security in that it highlights how closely the US Department of Defence and UK Ministry of Defence work together.”

He said the Government may require intellectual property to be safeguarded in the takeover, but that will not necessarily mean the deal has to ne blocked.

Advent has agreed a £35.16-a-share offer with Ultra’s directors to buy the company through Cobham, the British defence contractor it took over last year for £4bn. It has committed to legally binding undertakings to assuage national security concerns, but has not yet revealed what these are.

The takeover is controversial since Advent has sold off much of Cobham’s operations since buying the company, raising fears that the same could happen to Ultra.

Kwasi Kwarteng, the Business Secretary, last month ordered the Competition and Markets Authority to conduct a national security review of the deal by January 18. He has the power to block it if significant concerns are raised.

Ultra’s shares were up 0.5pc on Thursday. Ultra and Advent declined to comment.

Separately, Babcock has landed the first export contract for its Arrowhead 140 lightweight frigate design from Indonesia, which will build the two of the ships in local yards.

The FTSE 250 defence company is selling five of the ships to the Royal Navy for £250m each. It has only provided the design to Indonesia and the new contract is understood to be worth less than £20m

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