Boris faces test over £4bn Cobham deal
New PM urged to intervene on national security grounds
BORIS Johnson’s industrial strategy faces an immediate test after foreign bidders swooped on one of Britain’s oldest defence companies.
In a move that put pressure on the new Prime Minister and Business Secretary Andrea Leadsom, American buyout firm Advent International launched a £4bn bid. However, in a blow to the plans, Cobham’s biggest shareholder last night came out in opposition to the takeover. Silchester International, which owns 11.8pc, said the deal was not ‘compelling’.
It urged Cobham bosses to look for other bidders who could ‘offer better value’ to shareholders.
Cobham makes systems that let aircraft refuel while still in the air, and produces technology that is used on Airbus planes and F-35 fighters ( pictured).
It has struggled in recent years, putting out a string of five profit warnings between 2015 and 2017 and raising more than £1bn from investors after a poorly planned strategy to move away from the defence industry in 2014 left it crippled with debt.
But experts warned that the Government will be watching the deal closely to gauge whether or not this is a cut-and-sell job of the type that many private equity firms launch when they take over companies. It will put Johnson’s views on the sale of vital British assets to foreign buyers under the microscope, just days after he took office.
Former Tory defence minister Sir Gerald Howarth said: ‘The problem is that the general characteristic of a private equity company is to come in and take a firm that is struggling, strip out the assets or make minimal investment and then preferably get out within three years.
‘I think the secretaries of state for defence and business will both want to know what the proposed bidder’s intentions are and will seek reassurance that they intend to invest in the company and to ensure its position as a key supplier to the Ministry of Defence and to Britain’s strategic defence industrial capability.’
Johnson is expected to be more positive about foreign deals than his predecessor Theresa May, who vowed radical action to protect British companies from overseas predators – although this fighting talk lead to little in the way of action. By contrast, Johnson has always made a virtue of Britain’s openness and been a strong advocate of free trade.
In an interview conducted last year but broadcast for the first time this week, he told Chinese television that Britain is ‘the most open economy in Europe’ for foreign investment.
It comes after Melrose Industries’ controversial £8bn hostile takeover of British engineering stalwart GKN last year was opposed by unions and some politicians. National security has shot up the agenda this year due to President Trump’s crackdown on the Chinese, and fears that Shenzhen-based telecom firm Huawei’s infrastructure in Britain could be used for spying.
Earlier this week – before Johnson took office – the Government vowed to scrutinise a £2.7bn bid to buy Britain’s biggest satellite maker, Inmarsat, by a consortium including US and Canadian firms.
A source close to the Cobham deal said Advent is confident it will not run foul of the Government because the deal has the unanimous backing of Cobham’s board. Cobham’s chief executive David Lockwood said: ‘The UK is the most open defence market in the world – not only do we have foreign-owned companies operating here, the air force largely uses foreign equipment. It’s not obvious to me why, when we’re working at a lower level of classification to many other companies, people would worry about this.’
Advent has pledged to invest in the company, not move any of the major operations.
A Government spokesman said: ‘While this is a commercial matter for the companies involved, government is closely monitoring the transaction.’