Flawed flight for Biggles
THE speed with which David Lockwood and the board of aerospace and defence group Cobham embraced a £4bn bid from US private equity outfit Advent is unseemly.
At first blush, the offer for the business founded by flying ace Alan Cobham, a model for schoolboy hero Biggles, looks generous with a 50.3pc premium.
Some investors, notably Artemis, see the deal as a get-out-of-jail card after Cobham’s series of profit warnings and a £512m rescue rights issue in 2017.
But before anyone gets carried away on the munificence of the price, it is worth remembering that Advent is buying depreciated sterling assets at a big discount as a result of the fall in the pound.
Moreover, British share indexes have underperformed all other Western markets and Advent is a deft hand at harvesting ‘bargains’ in the FTSE 350.
Even the company’s largest shareholder, Silchester International doesn’t think it is enough, and is hoping for a higher offer.
As with so many private equity bids, the trick is to load the company just bought up with debt. In Cobham’s case that is the ultimate insult as it has only just dug itself out from under a debt mountain. The temptation for the ‘global Britain’ Boris Johnson government would be to claim the deal shows the UK is still open for business and to waive regulatory barriers. But that would be an act of industrial sabotage.
In a different part of the firmament, the shares of pharma group Astrazeneca jumped 7.7pc to a record high of 6850p in latest trading on the back of soaring sales in China and success for its cancer beating immunology treatments. Had investment bankers and the Cameron government had their way, AZ and its brilliant pipeline would have been no more than a few paragraphs in the Pfizer annual report.
A spirited board fought a brilliant rearguard action against investors demanding cash now rather than long-term gains. The heritage of Cobham, the pioneer of flight refuelling, ought to have been enough for the directors as guardians of aerospace innovation to have thought twice before flogging the enterprise. In the acquisition documents, Advent actually spells out why it would be madness for the UK to lose command and control.
It argues that Cobham is worth the price because of its ‘technological excellence, product innovation and its trusted partner status as a leader in its defence, aerospace and space markets’. It goes on to talk about the firm’s capabilities and know-how. These are precisely reasons why this is a deal which should be opposed.
As with so many recent bids, the buyer seeks to use shock and awe into allowing stakeholders to think it is a done transaction. This is a long way from the truth. National security exposure means the transaction will need the approval of both the Pentagon and the Ministry of Defence.
By announcing scrutiny of the deal, the little known Defence Secretary Ben Wallace has an early chance to stamp his authority. The freshly minted Business Secretary Andrea Leadsom could also show that Johnson meant what he said when he stood on the steps of Downing Street and promised to support R&D and innovation in the UK.
There is small chance of that when vital technologies and patents end up in the hands of private equity American predators who have no long-term interest in British avionics and jobs, and will doubtless denude the nation’s corporation tax base by using debt financing.
This is a bad deal for Britain and a sugar rush for shareholders which should be firmly resisted.
Whisky galore
AT a time when global growth is looking uncertain, you might think that Johnnie Walker- to- Guinness champion Diageo might be feeling the pain.
Remarkably, under the leadership of Ivan Menezes it has been able to chalk up sharply higher organic sales in every territory in which it operates, including its biggest market in North America as well as Europe, Africa, China and India.
Growth has been powered by the gin boom and rising demand among the aspirational Chinese for Blue Label and single malts. With operating profits hitting the £4bn mark, there is cash aplenty for ploughing funds into marketing and investing heavily in Scotland with two new distilleries and a Johnnie Walker experience soon to open in Edinburgh.
Investors are to be rewarded with a promised £4.5bn share buyback over the next three years. That justifies a wee dram.