The barbarians held at bay
THE £4bn heralded conquest of flight refuelling pioneer Cobham by private equity princelings Advent has a nasty sting in the tail.
In her first major intervention since taking over as Business Secretary, archBrexiteer Andrea Leadsom rightly has sent the deal to the Competition & Markets Authority (CMA) on national security grounds.
This may not appear exceptional for companies involved in Britain’s aerospace sector, but these decisions do not simply happen, especially when Government initiative has been smothered by Brexit.
A great deal of credit for the referral must go to Lady Cobham, daughter-in-law of the war hero and founder Sir Alan Cobham, who heavily lobbied ministers and investors, demanding that something be done.
The difference between the proposed Cobham takeover and other aerospace deals arises from the new ownership. As a private equity outfit, Advent largely works behind closed doors. It is hard to track whether it is acting in the national interest or not.
The primary function of private equity is reaping superior returns for wealthy investors and funds. A quick flip of assets is generally the goal, rather than long-term investment in R&D and preserving a company’s technological edge.
The big risk for Britain’s aerospace sector and national security is that Advent chooses to sell Cobham whole or in parts to the first buyer, posing a risk to defence and of technology transfer. Indeed, broker Jefferies suggests that Special Mission, which generates 50pc of Cobham’s income, could be separated or sold off the bat.
Concerns about safe ownership and preserving R&D were among the reasons that the Government obtained pledges from UK-based Melrose Industries that it would not sell on GKN’s aerospace assets for five years.
In the name of efficiency and improved margins, Melrose has been trimming GKN aerospace. It closed the Redditch plant, near Birmingham, and has warned of at least 1,000 further job losses to come. That may be just the start.
Cobham is the global leader in flight refuelling, which famously played a huge role in Britain’s victory in the Falklands War.
It is still pushing the frontiers and recently helped develop an unmanned aircraft which can refuel fighter jets.
The company’s Advanced Electronic Solutions has special security status, which allows it to work for the Pentagon. Cobham electronics and equipment are present on both the Typhoon Eurofighter and the US’s advanced F-35 fighter.
Advent regards the referral to the CMA as routine and says it is involved in sensible discussions with the Government.
Brokers and City advisers say the referral is routine.
The same mistake was made when most advisers, including legal eagles, thought the grocery merger between Sainsbury’s and Asda would go through with some tweaks. It was stopped dead in its tracks.
Under the leadership of Andrew Tyrie, the CMA has earned a reputation for its forensic work, and refuses to be bullied by commercial parties and highly paid advisers.
It pays far more attention to the wider impact of takeovers on consumers, workforce, R&D and the national interest. Advent may be licking its lips at having snapped up a bargain, but it is a long way from getting its hands on the controls.
High five
RUNNING a FTSE 100 company has become as risky as being a Premier League football manager.
When Veronique Laury steps down at Kingfisher this month she will be the tenth chief executive to part company this year, and reduce the number of FTSE 100 women bosses to just five.
Not the kind of progress which the FTSE gender equality champion, Lord Davies, has been aiming for.
Laury is paying heavily for a change of taste, which has seen do-it-yourself lose popularity. Her focus was on rebuilding Kingfisher-owned B&Q through a plan aimed at cutting costs and delivering productivity. But it might have been wiser to focus on growth.
The big success story has been online champion Screwfix, which has been transformed into a flourishing digital enterprise.
Laury’s legacy is one of managing decline, but the stock market hasn’t much liked it and wiped 30pc off the share price during her time in charge. Successor Thierry Garnier might have found a better use for the £600m returned to shareholders by investing in Screwfix and shrinking the rest.