Comments on Ultra Electronics Bid

Ultra Electronics (ULE) have announced a possible cash offer for the company from Cobham. The “non-binding” offer is for £35 per share, which is 42% up on the closing price last night. Before I say any more, it’s worth stating that I own quite a few shares in the company which I started buying over a year ago as it looked reasonably priced and a defensive stock during the pandemic.

But as Ultra operates in the defence sector (a strong focus on anti-submarine warfare for example), the Government may have a say in whether the deal goes through. That is why the company says it is “minded to recommend” the offer subject to a number of conditions including the “establishment of safeguards for the interests of Ultra’s stakeholder groups”.

Cobham is a UK company but is now owned by US based private equity business Advent International. Their takeover of Cobham was also controversial as this was another example of what was perceived to be a great UK technology business with exposure to sensitive defence operations.

The deal may not go through which is why the share price is trading below the likely offer price. But with such a high bid premium (82% to what I first started buying it at), I am unlikely to vote against the offer.

The only question in such circumstances where completion is uncertain, and even if a bid goes through is likely to take many months to complete, is whether to sell shares in the market on the principle a bird in the hand is worth two in the bush, or whether to wait out the result. I tend to hedge my bets in such circumstances by selling a proportion of my shares and awaiting the outcome for the others.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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