Cobham’s largest shareholder fights £4bn Advent deal
Silchester urges defence contractor to seek better value as investors express unhappiness
The largest shareholder in Cobham has come out against the company’s agreed £4bn takeover by US private equity fund Advent International, arguing that it does not see the deal as “compelling”.
Silchester International, which owns 11.83 per cent of the FTSE 250 aerospace and defence group, said it was urging management to “seek and respond to other parties who might offer better value to the stakeholders of Cobham”.
The fund said Cobham, one of Britain’s oldest engineering groups which has undergone a restructuring under its current management led by David Lockwood, had had its balance sheet restored by public shareholders and that the fruits of the turnround would flow through in the next few years.
The rejection of the offer comes after Cobham on Thursday unveiled an all-cash 165p takeover from Advent backed by management. Mr Lockwood had earlier defended the sale, saying investors were being offered “cash certainty now” without further execution risk.
Mr Lockwood, who embarked on a turnround strategy two and a half years ago, told the Financial Times: “We are not selling out on the cheap. This is a fair price for the business today.”
Advent’s offer is a 34.4 per cent premium to the group’s closing price of 123p on July 24 and a 50.3 per cent premium to its average share price over the past three months.
Shares in Cobham soared 35 per cent on Thursday and finished at 165.5p, trading above the value of the Advent offer in a sign investors expect further bids.
Despite the premium, another top 10 shareholder, said they were “disappointed” at another UK industrial group being bought by an overseas fund.
“It is also very good timing by the private equity house as management has sorted out a lot of problems,” said the shareholder, adding that they would “wait and see” if another offer materialised.
Columbia Threadneedle, a fund manager holding 8.7 per cent of Cobham’s shares, said it was supportive of the company’s management and directors. “They have done a good job stabilising the business and starting to turn it around. The bid is opportunistic in terms of timing and price and could well generate other interests.”
Silchester was set up in 1994 by British multi-millionaire Stephen Butt and some of his former colleagues from Morgan Stanley.
Although the asset manager largely avoids the spotlight, it often exerts huge influence in the companies in which it invests, chiefly because it takes large stakes of up to a fifth of the shares. Last year, a controversial buyback plan at TVB, the Hong Kong broadcaster, was scrapped following strong criticism from Silchester.
The proposed sale will test the appetite of Boris Johnson’s government for takeovers of key parts of Britain’s industrial base.
Advent on Thursday said it “understands the importance of Cobham's research and development and production sites and intends to maintain investment in this area”. It added it did not expect any “material change in the balance of skills and functions of the employees and management” of Cobham.
The £8bn hostile takeover last year of GKN by Melrose Industries, a turnround specialist although not foreign-owned, faced intense controversy with politicians and unions arguing that it risked harming Britain’s manufacturing industry.
A spokesperson for the government said in a statement while “this is a commercial matter for the companies involved”, it was “closely monitoring the transaction”.
The group is expected to start discussions with the Ministry of Defence and other relevant authorities on national security grounds as early as next week as it looks to clear regulatory hurdles. Advent does not to anticipate any major issues and the deal is expected to be cleared in the next three to four months, people close to the company indicated.
The private equity group has so far secured the backing of investors holding 5.2 per cent of the stock, including Cobham’s management as well as Artemis Investment Management.
Chuka Umunna, the Liberal Democrat business spokesman, said it was “no ordinary transaction” and poses “serious questions” for the public interest, related to national security as well as economic strategy.”
Analysts welcomed the premium but Sandy Morris at Jefferies said: “We were looking forward to a rejuvenated Cobham adjusting its portfolio and flexing its financial muscle. We feel robbed.”
Ben Bourne, analyst at Investec, said: “It’s a good price and above most analysts’ 12-month target prices.
“It’s plausible that other bidders will come out of the woodwork given the quality of the long-term recovery.”
Cobham, founded in 1934 by aviation pioneer Sir Alan Cobham, is best known for its aerial refuelling technology which is used on almost all western fast jets but it also makes parts for passenger jets, as well as components for satellite communications.
It was shaken by a string of profit warnings in 2016 and 2017 and forced to raise cash from shareholders. But Mr Lockwood had recently managed to put the group on to a more secure financial footing, notably settling a dispute with Boeing, one of its key customers.
It is financing the purchase through a combination of equity and debt. The equity is drawn from funds managed primarily by Advent as well as GSO Capital Partners and Blackstone.
This article has been amended to say that “Cobham on Thursday unveiled an all-cash 165p takeover from Advent backed by management” rather than “all-share” as first reported.