- Offer tops a previous offer by Cobham in June
- Ultra considering offer to shareholders
- Deal may be subject to UK scrutiny over security concerns
- Takeover would help Cobham tap marine defence market
July 23 (Reuters) - Defence group Cobham Ltd has made a $3.6 billion offer to buy UK-based rival Ultra Electronics (ULE.L), Ultra said on Friday, adding that it was considering recommending the bid to shareholders.
Shares in London-listed Ultra, whose major customers include the British and U.S. governments, soared as much as 34% to a record high of 33.18 pounds on the news, below Cobham's offer price of 35 pounds per share plus a dividend of 16.2 pence a share.
The offer, the latest in a flurry of private equity interest in British companies driven by cheap valuations due in part to the pandemic and Brexit, is higher than a 28-pounds-per-share bid made by Cobham in June.
Cobham, based in Dorset, England and founded in 1934, is known for its pioneering air-to-air refuelling technology. It was bought last year by Boston-based private equity firm Advent International, and its U.S. ownership could mean the deal draws national security concerns in Britain.
Both companies have respective technologies used in the U.S. F-35 and Eurofighter Typhoon jets.
Ultra, which had rebuffed Cobham's June offer, said it was considering recommending the latest proposal to shareholders subject to the agreement of various terms, while Cobham said in an emailed statement that it welcomed that announcement.
A purchase of Ultra would help Cobham tap the maritime defence market, where Ultra sells sensors, torpedo and radar systems, mainly to Western customers. The company also makes a range of defence communication equipment and forensics software.
Cobham, which makes devices used in electronic warfare and missiles, said it has "offered assurances that appropriate national security undertakings will be offered to the UK government", without elaborating.
Though national security concerns could arise, there are already other British defence companies with U.S. ownership, said Peel Hunt analyst Henry Carver.
"I don't think that's going to be a sticking point," Carver said, noting the strong defence relationship between the two countries. "This is an offer that shareholders cannot ignore ... we think it likely that a deal will be done," he said.
Cobham said in June it hoped to create a "global defence electronics champion" by buying Ultra as they provide complementary offerings to the United States, UK and other defence allies.
J.P. Morgan Cazenove is Ultra's financial adviser on the offer.
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