Why the UK government is intervening in £4bn Cobham takeover

The government has announced that it is intervening in the contentious £4bn takeover of British defence and aerospace company Cobham by a US private equity firm, citing national security concerns.

The cash sale, which was agreed on Monday between Cobham and Boston-based Advent International, was supported by 93.22% of shareholder votes, and marked a 50% premium on the three-month average share price prior to the deal’s announcement.

Cobham, based in Wimborne Minster, Dorset, was established in the 1930s, and is a specialist in air-to-air refuelling technology. The sale came despite the objections of the founding Cobham family, who own a 1.5% stake in the firm.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

“Cobham’s pioneering air-to-air refuelling technology is used on all western fast jets but it is also a key supplier of components for the F-35 fighter and to the US military’s electronic warfare and radar capability,” reports the Financial Times.

During a shareholder meeting on Monday, Cobham chairman Jamie Pike claimed that management had “pushed as hard as they could push” on the price, but had agreed a deal.

Despite the agreement reached between the two firms, however, ministers have decided to intervene in the sale, and have referred the case to the Competition and Markets Authority (CMA), which is due to report back to them by 29 October.

“Following careful consideration of the proposed takeover of Cobham, I have issued an intervention notice on the grounds of national security. The government’s goals are to support private sector innovation whilst safeguarding the public interest,” said Business Secretary Andrea Leadsom.

“It marks a fresh twist in what has become a controversial takeover attempt. Cobham, which is led by David Lockwood, 57, its chief executive, is one of Britain’s biggest defence and aerospace businesses, employing about 10,000 staff globally, including almost 1,800 in the UK,” reports The Times.

–––––––––––––––––––––––––––––––For a round-up of the most important stories from around the world - and a concise, refreshing and balanced take on the week’s news agenda - try The Week magazine. Get your first six issues free–––––––––––––––––––––––––––––––

“This could be an indication of a change of attitude by the Government towards the UK's defence industry,” said Julian Lewis, chairman of the parliamentary defence select committee. “It could mean ministers are beginning to think about the UK's defence requirements, and not just global commercial considerations.”

The Telegraph says: “Takeover activity has often felt like a one-way street; it has been easy to buy here, tougher in many jurisdictions to buy there. A case in point is Hong Kong Exchanges and Clearing’s (HKEX) £32 billion bid for the London Stock Exchange. It would be virtually impossible for the LSE to buy HKEX, which through board nominees is effectively controlled by Beijing.”

It adds that “recently, ARM Holdings, arguably Britain’s premier technology company, was sold to a Japanese financier, who then transferred much of its intellectual property to China”.

Writing in The Guardian, Sean Farrell puts the trend for purchases of UK companies in context. “Private equity firms have been snapping up UK companies such as satellite provider Inmarsat and theme park operator Merlin Entertainments, attracted by low prices caused by the weak pound and Britain’s reluctance to block takeovers,” he says.

Yesterday, Lady Nadine Cobham, the daughter-in-law of founder Sir Alan Cobham, said she was “delighted” that the government had “listened to the widespread concerns about this takeover offer and the risk it poses to high-tech jobs and our national security”. Lady Cobham had led the campaign to prevent the sale, and had written to the government asking it to intervene.

Chuka Umunna, the Liberal Democrats’ shadow foreign secretary, said: “We’ve been demanding for weeks that the government intervene in this transaction. Not only are there clear national security grounds to do so but it threatens to materially impact on our manufacturing base in this country.”

However, writing in Bloomberg, Chris Hughes disagrees. “If Cobham is so vital, why doesn’t the government already have a golden share that would give it de facto control?” he asks. “The government should demand remedies to any genuine security issues it sees. But a block without good reason would set a protectionist precedent, deter foreign bids, shield poor-performing managers from the threat of takeover and deprive investors of the opportunity to exit investments at premium.”

Nevertheless, reports The Telegraph, “analysts at Berenberg described Business Secretary Andrea Leadsom's instruction that the Competition and Markets Authority examine the takeover of the defence and aerospace company on public interest grounds as ‘being emotionally led’. They said that with 8pc of Cobham's work being for the UK military and only 15pc of its staff based in Britain, they did ‘not believe that a UK national interest review will jeopardise the closing of this transaction’.”

A Cobham spokesman said: “We welcome the opportunity to clarify Cobham’s activities in the context of UK national security and to assuage the concerns that have been expressed by certain shareholders and via the media.”