Cobham to buy U.S. firm Aeroflex for $920 million

LONDON Tue May 20, 2014 12:05pm EDT

LONDON (Reuters) - British aerospace and defence supplier Cobham (COB.L) is buying U.S. communications equipment maker Aeroflex Holding Corp ARX.N for $920 million, continuing its quest for commercial customers as its main defence clients cut spending.

Cobham said on Tuesday the deal, the biggest in its 80-year history, had seen it agree to pay $10.50 per share in cash for New-York based Aeroflex, which makes components and systems used in broadband and wireless communications.

The price represents a 26-percent premium to Aeroflex's closing price on the New York Stock Exchange on Monday. The deal had a total enterprise value of $1.46 billion, including the assumption of Aeroflex's $540 million of debt.

Cobham Chief Executive Bob Murphy said the deal would give Cobham a leading position in technology markets where there were high barriers to entry.

"It will also increase exposure to attractive commercial markets including wireless, space, medical and microelectronics," he said.

Some 70 percent of Aeroflex's revenues come from commercial markets and 30 percent from defence and security, whereas Cobham's split is 35 percent to 65 percent.

It said buying Aeroflex would push up the portion of its revenue from commercial sales to 41 percent.

"The acquisition really helps us change the shape of our portfolio so we continue to get more exposure to growing commercial end-markets. That's what going to help us deliver sustainable growth," Murphy told reporters.

Cobham has been trying to expand in commercial markets to make up for declining defence spending from U.S. and European governments.

It said last year that it was on the hunt for more deals after buying wireless communications firm Axell Wireless for 85 million pounds.

Cobham raised 180 million pounds on Tuesday to help fund the acquisition, placing 60 million shares at a price of 300 pence each, representing about 5.6 percent of the company's share capital.

Shares in the FTSE-250 company closed down 4.5 percent at 298 pence, just shy of the placing value, having hit an all-time high of 324.7 pence.

Jefferies analysts said Aeroflex had much in common with Cobham, but was a complex business that could take time to assimilate.

"Nonetheless, it also appears to be a decisive step forwards in implementing Cobham's strategy, something we welcome," they said. "If Cobham can achieve the synergies identified and if - like Cobham - Aeroflex returns to organic growth in FY15, the outlook for the enlarged group will be positive."

Cobham said it expected the deal to yield annualised run rate cost synergies of approximately $85 million for a total investment of $215 million.

Aeroflex, which reported full-year net sales of $647.1 million for 2013, would comprise about 17 percent of the enlarged group's consolidated revenues.

Cobham expects the Aeroflex acquisition to boost underlying earnings in 2015 and, assuming completion late in the third calendar quarter of 2014, to have a broadly neutral impact on underlying earnings in the current financial year.

The company said it had already secured agreement from shareholders controlling 76.3 percent of Aeroflex's voting rights.

(Reporting by Brenda Goh and Paul Sandle; Editing by Kate Holton and Jason Neely)