- Buyers Guide
Cobham plc (Cobham) announced that it has reached agreement to purchase M/A-COM from Tyco Electronics for a cash consideration of US$425 M on a debt and cash free basis payable on completion, which will be satisfied from Cobham’s existing cash and debt facilities. The goodwill arising on completion is an allowable tax expense with an estimated net present value of US$45 M, resulting in an effective price of US$380 M. It is anticipated that in 2008 the aerospace & defence (A&D) business of M/A-COM will be just under 40 percent of its total revenue. Cobham intends to hold for resale the commercial business, which represents the balance, as it is non-core. Based on the encouraging level of interest believed to have been expressed during Tyco Electronics’ auction, Cobham anticipates this can be divested expeditiously. The acquisition of M/A-COM is expected to complete in the second half of 2008 and is subject only to customary regulatory approval.
Information on the Aerospace & Defence Business
A&D is a leading designer and manufacturer of advanced radio frequency (RF) and microwave subsystems and components and is the best-known and one of the largest Original Equipment
Manufacturer’s of microwave subsystems and components in the world. Its products include a broad range of aerospace and defence, space, Force Protection and Homeland Security solutions, which are currently used on platforms including F-35, Advanced Medium-Range Air-to-Air Missile (or AMRAAM), Standard Missile, Maritime Multi-role Aircraft (or MMA) and Integrated Defense Electronic Countermeasures (or IDECM). A&D employs some 1,000 people based principally in California and Massachusetts, US, including some 160 engineers.
Rationale and benefits of the acquisition
A key element of Cobham’s strategy is growth through acquisition to reinforce existing strengths, key technologies and market positions. It aims to become a global Tier 2 subsystem supplier of integrated RF front ends for Radars and Electronic Warfare (EW) systems. The acquisition of M/A-COM is a significant step forward in the execution of this strategic objective. A&D is highly complementary to the existing Cobham Defence Electronic Systems (CDES) business, bringing additional microwave technical expertise, new subsystems, products and customer relationships. There are excellent opportunities to collaborate with the existing CDES businesses, particularly REMEC on business and product development, which will facilitate the development of superior products with enhanced capabilities in this highly specialised market. This is particularly the case for high-performance, miniaturized front ends for missiles, EW systems and radar systems.
Cobham intends to accelerate Internal Research and Development (Private Venture or PV) investment in the business to become one of the most complete aerospace & defence RF and microwave electronics design and manufacturer in the industry, providing the most technologically advanced components and subsystems on aircraft, missiles, Unmanned Aerial Vehicles, ships, ground vehicles and for the soldier. As a consequence, it is anticipated that A&D will grow in line with the rest of CDES after 2009. It will be operated under an existing Special Security Agreement with the US Department of Defense.
The CDES management team has a long-established track record of transitioning and integrating new acquisitions. It is intended that the active microwave activity in San Jose, CA and Lowell, MA will be managed along with REMEC and the microelectronics segment of Lansdale, and run as a single unit. The Signals Intelligence and antenna capabilities will be run with Cobham’s Sensor and Antenna Systems business.
Disposal of the Commercial Business
The commercial activities of M/A-COM will be run outside of Cobham’s operating divisions as non-core and will be held as an asset for resale. Given the encouraging level of interest believed to have been expressed during the auction by Tyco Electronics and some direct approaches received, Cobham anticipates that this business can be divested expeditiously and for a value that supports the Cobham business case for the A&D acquisition.
Allan Cook, Cobham Chief Executive, said: “Cobham set out to create a presence in the US Defence Electronics industry 14 years ago and has made 10 acquisitions, most recently REMEC and Sensors & Antenna Systems, Lansdale. These businesses have been integrated into a division capable of providing very high end and technical active microwave and antenna subsystems, providing solutions to meet critical customer needs for Radar front-end, EW and CNI.
In 2007 the division delivered $600 M revenue and a 24 percent return on invested capital. With Lansdale and M/A-COM we will have pro-forma revenue of $850 M in Defence Electronics, which is at the heart of Cobham’s strategy.”
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