|18 September, 2019

Defence deal puts post-Brexit UK in crosshairs

Blocking the deal on spurious national security grounds would shoot down Britain’s pretensions of post-Brexit openness

Canadian F-18 war planes (L) wait to refuel from a British VC-10 tanker aircraft over the Mediterranean Sea off Libya July 10, 2011.

Canadian F-18 war planes (L) wait to refuel from a British VC-10 tanker aircraft over the Mediterranean Sea off Libya July 10, 2011.

Reuters/David Brunnstrom

LONDON - Generations of British schoolboys were brought up on the tales of derring-do by World War Two flying ace Biggles. That partly explains the government’s review of Advent International’s $5 billion acquisition of Cobham, founded by aviation pioneer and supposed Biggles role model Sir Alan Cobham. But it does not excuse it. Blocking the deal on spurious national security grounds would shoot down Britain’s pretensions of post-Brexit openness.

Leading the charge against the dastardly U.S. buyout barons is Lady Cobham, the widow of Sir Alan’s son, Michael. She owns 1.5% of the company, which specialises in air-to-air refueling kit used by militaries all over the world. Her attempts to lobby other shareholders into rejecting the 165 pence per share deal on grounds of price fell on deaf ears. But her concerns about national security appear to have gained more traction with traditionalists within Prime Minister Boris Johnson’s cabinet.

If the review announced on Wednesday turns out to be little more than box-ticking – and its six week reporting window suggests it won’t be digging too deep – the damage to Britain’s investment reputation will be little more than a minor graze. The government has to sign off on all major transactions, and defence is particularly sensitive.

But if Britain demands a deeper and wider ‘Level 2’ review, tries to wring major concessions out of Advent over local production or jobs, or blocks the whole thing, it will affect how investors look at the country. Shareholders have already agreed the deal, and Cobham is hardly critical to Britain’s national security. Last year, 38% of its 1.9 billion pounds of revenue came from the United States, compared to 26% from the UK, and more than half its workforce is based in America.

Cobham shares slipped less than 1% after the review was announced, a reflection of shareholders’ lack of concern. Since 2004, Britain has completed defence-related reviews on eight deals and cleared all of them. Should that trend change, it won’t just be Cobham’s share price that will head earthwards.

CONTEXT NEWS

- Britain ordered a security review on Sept. 18 of the $5 billion takeover of defence contractor Cobham by U.S. private equity firm Advent International.

- Business minister Andrea Leadsom gave the Competition and Markets Authority until Oct. 29 to decide whether the deal, which was recommended by Cobham’s board and approved by its shareholders on Sept. 16, should go ahead.

- Shares in Cobham slipped 0.6% to 159.5 pence by 0752 GMT on Sept. 18, compared to an offer price of 165 pence.

(Editing by George Hay and Karen Kwok)

© Reuters News 2019

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