Yahoo Finance Cobham offers separate US-UK boards to win control of Ultra Electronics
Separate UK and US boards could be formed to protect Britain’s national security as a condition of Ultra Electronics’ potential takeover by Cobham, which is owned by US private equity firm Advent.
Senior industry sources familiar with Ultra’s secret operations said creating the two management structures would ease government concerns about the £2.6bn deal.
On Monday it emerged that the Business Secretary, Kwasi Kwarteng, is taking an “active interest” in the proposed £35 a share all-cash offer and could order a review of the transaction to protect UK interests.
The development comes as Cobham announced two heavyweight board appointments with national security expertise.
Former soldier Martin Clements, a 30-year veteran of the Foreign and Commonwealth Office where he worked on sensitive technology often with US counterparts, is joining as a non-executive. The company has also recently recruited former US Defence Secretary Mark Esper.
One source familiar with Ultra said the companies would have met informally with the Government to understand what is needed to push a deal through.
The source added: “They’ll have been told they need the infrastructure to protect UK national security. Separate UK and US governance structures would do that, especially if Advent is planning to domicile the business in the US.”
UK-based anti-submarine warfare, cryptology and one other top-secret operation are those that the government will want to see secured, the source said.
More than half of Ultra’s revenues are generated in the US and the company’s structure is complicated having been created by acquisitions around the world, with more than a dozen smaller businesses. This meant its intellectual property (IP) often resides in the country where a business was bought.
Separate boards for the different national security interests would solve the issue.
Professor Trevor Taylor, director of defence industries at military think-tank RUSI, warned the US was much more protective of its IP than Britain.
He said: “Two boards is a viable solution. The UK has never been as rigorous protecting its IP as the US. The question is whether Her Majesty’s Government is really ready to put in place restrictions like the US imposes on us.”
However, the boss of Cohort, the Aim-listed military and communications supplier, warned against acquisitions in the sector.
Presenting annual results that revealed a record sales and order book, chief executive Andy Thomis said while takeover and mergers were part of a "natural evolution" in the sector, "there were so many exampled of acquired companies being crushed by acquisition", as staff in smaller companies which are bough lose their freedom to innovate as they find themselves part of larger corporate structure.
Ultra is thought to have used Advent’s controversial battle to acquire Cobham two years ago as leverage to achieve the 63pc premium and pledges about protecting the company’s UK operations.
Advent gave undertakings to be a “responsible steward” for Cobham and pledged that at least half the directors would be British, along with a UK national controlling so-called “List X” work on secret British military technology.
However, since the 2019 acquisition, Advent has sold off the bulk of Cobham. Despite this it has complied with the undertakings, despite critics accusing such as Labour MP and Defence select committee member Kevan Jones of accusing the private equity firm of “driving a coach and horses through them”.
To get the deal nodded through by UK authorities, one source said Ultra will want more strenuous pledges, such as the separate boards.
A spokesman for Ultra said the company was minded to recommend the proposal “subject to consideration and satisfactory resolution of other terms and arrangements, including the establishment of safeguards for the interests of Ultra's stakeholders”.
Cobham said: “We have offered assurances that appropriate national security undertakings will be offered to the UK Government.”
Ultra shares rose 0.4pc to £31.23.
