Shares in defence contractor Ultra Electronics (ULE) dropped 4% to £22.02 on Monday morning after the company said it had ended discussions with private equity-owned rival Cobham on a potential combination of two business units.

Ultra shares had spiked 7% just before the market close on Friday after what Shares gathers was a mis-timed press release from Cobham saying that it was considering ‘a possible combination with Ultra with a view to creating a global defence electronics champion’.

The press release was subsequently withdrawn, but it drew a robust response from Ultra, which acknowledged it had been ‘at the very early stages of discussions’ regarding merging some or all of its Intelligence and Communications Strategic Business Unit with Cobham’s CAES Group, but that those discussions were limited and had been terminated.

Ultra went to great pains to clarify that talks had involved a private M&A transaction, which wasn't subject to the Takeover Code, and that it had not received a proposal from Advent, which acquired Cobham for £4 billion last year.

Later on Friday evening, Cobham re-issued its statement adding that ‘a number of structures are under consideration to effect such a combination, including a contribution of Cobham into Ultra in exchange for new Ultra shares or a possible offer for Ultra by Cobham’.

Cobham also referenced the 28-day ‘put up or shut up’ period stipulated under the Takeover Code and the potential to extend the offer period ‘with the consent of the Panel of Takeovers and Mergers’.

Investors can be forgiven for being confused, but the upshot of Friday's announcements is that having rejected a combination with CAES, Ultra now finds itself potentially on the end of an unsolicited bid, although there is no guarantee that Advent in the guise of Cobham will actually tailor one.

Analysts have been unusually quiet in light of the news and when Shares called Cobham’s advisers there was no response. Ultra and its advisors are now in the 'offer period' and are therefore unable to comment.


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Issue Date: 28 Jun 2021