Cobham plc announces that it has entered into a conditional agreement to acquire Aeroflex Holding Corp. ("Aeroflex") for $10.50 per Aeroflex share in cash following completion, giving the proposed transaction an enterprise value of approximately $1,460m (£869m).  This comprises the total issued and outstanding shares of common stock of Aeroflex and the total outstanding restricted stock units and performance restricted stock units, which are valued at approximately $920m (£548m), together with Aeroflex's net debt of $540m (£321m) at 31 March 2014.

Cobham is paying approximately 10.5x adjusted Earnings Before Interest, Taxation, Depreciation and Amortisation ("EBITDA") market consensus estimates for the year ended 31 December 2014.  This is before taking account of expected annualised run rate cost synergies of approximately $85m (£50m) from the combined business, for a total investment of approximately $215m (£128m), with the majority of this programme expected to be implemented in the first three years of ownership.  These synergies are available due to significant complementary capabilities, characteristics and customers, enabling the implementation of a business integration programme leveraging Cobham's Excellence in Delivery ("EiD") expertise.  On a pro forma basis, Aeroflex would comprise approximately 17 per cent of the enlarged Group's consolidated revenue.

 Headquartered in Plainview, New York, Aeroflex is a leading global provider of radio frequency, or RF, and microwave integrated circuits, components and systems used in the design, development, test and maintenance of technically demanding, high performance equipment for critical and harsh environments and wireless communication systems.  Aeroflex services multiple business sectors including commercial space and avionics, commercial wireless, medical, defence, energy and other industries.  Approximately 70 per cent of its business is focused on higher growth commercial segments.  The business is a leader in all of its primary product areas.

 The Board of Cobham believes the Acquisition represents a significant development in Cobham's objective to create shareholder value by delivering sustainable top and bottom line growth, while generating good free cash flow for the following reasons:

  • The acquisition is consistent with the Cobham strategic objective of building and maintaining leading positions in selected higher growth, high technology commercial segments.  It provides a compelling and complementary strategic fit with Cobham, building on Cobham's focus on connectivity, which was further strengthened by the acquisitions of Thrane & Thrane in 2012 and Axell Wireless in 2013;
  • Aeroflex possesses complementary capabilities and characteristics to Cobham with long life cycle products, attractive technology, long standing customer relationships and sole source positions.  It has technically demanding components and products, with strong operating margins and cash flow generation.  Aeroflex's underlying operating margins and cash flow generation are comparable to the broader Group;
  • Aeroflex has complementary products and customers in its Microelectronic Systems business, including passive and active microwave components, integrated microwave assemblies and slip rings, further enhancing Cobham's position as a tier three supplier, and helping generate additional revenue synergies;
  • Aeroflex increases Cobham's exposure to growing commercial segments and strengthens key customer relationships in wireless, space, microelectronics, industrial, energy and other sectors, increasing the enlarged Group's commercial revenue from 35 per cent to 41 per cent of the total, on a pro forma basis;
  •  Aeroflex has maintained consistently high levels of Private Venture ("PV") or company funded Research & Development investment.  As a result of this investment, Aeroflex has developed a strong innovation pipeline, including radiation hardened and power enhanced microelectronics, mixed signal/digital integrated circuits and the industry standard TM500 wireless network test system;
  • Aeroflex is expected to deliver highly attractive financial returns, with significant additional value expected from the combined entity of approximately $85m (£50m) in annual synergies from cost savings and operational efficiency improvements, from a total investment of approximately $215m (£128m), with the majority of the programme expected to be implemented in the first three years of ownership.  These will be derived from a focused integration programme across Aeroflex and the wider enlarged Group, to create scale businesses, by leveraging Cobham's EiD expertise.

The estimated financial benefits set out above are contingent on the Acquisition and could not be achieved independently.  Such estimated financial benefits reflect both the beneficial elements and relevant costs.

 The acquisition of Aeroflex is expected to be significantly accretive to underlying earnings in 2015 and, assuming completion late in the third calendar quarter of 2014, to have a broadly neutral impact on underlying earnings in the current year.  Expected returns will beat Cobham's cost of capital in the third full year of ownership.

 Cobham proposes to finance the Acquisition, which includes the refinancing of existing debt facilities of Aeroflex, through bank facilities.  In order to maintain an appropriate level of gearing, the acquisition financing will include the proceeds of an equity placing of up to approximately 6 per cent of Cobham's current issued share capital. 

 The Acquisition constitutes a Class 1 transaction for the purposes of the Listing Rules and therefore requires the approval of Cobham Shareholders.  A General Meeting will be held in due course for Cobham Shareholders to approve the Acquisition.  The Acquisition is expected to complete late in the third calendar quarter of  2014.

 Concurrent with execution of the Merger Agreement, certain affiliates of Veritas Capital, Golden Gate Private Equity and GS Direct LLC have entered into a Support Agreement, pursuant to which, subject to the terms of the Support Agreement, they have agreed to cause VGG Holding LLC, the entity through which such affiliates beneficially own shares in Aeroflex, to vote its shares in favour of adopting the Merger Agreement at the Aeroflex Shareholder meeting called for such purpose.  In the aggregate such shares represent approximately 76.3 per cent of the voting share capital.

Cobham's Chairman, John Devaney said:

 "This transaction is a compelling strategic fit for us on a number of fronts, bringing together two high technology businesses with complementary capabilities, customers and characteristics.  Aeroflex has maintained consistently high levels of company funded Research & Development resulting in a pipeline of products that we expect to further underpin our growth profile, with the business expected to deliver highly attractive financial returns."

 Cobham's Chief Executive Officer, Bob Murphy said:

 "The acquisition of Aeroflex is absolutely aligned with our strategic objective to obtain more exposure to growing, commercially oriented end markets that increasingly demand more data, connectivity and bandwidth.  The scale and complementary nature of the combination enables our two technology businesses to unlock significant synergy benefits to generate increased shareholder value, while supporting our customers even more effectively.  Bringing these two companies together further underpins our objective to deliver sustainable organic growth."

A presentation for analysts and investors will be held today at Bank of America Merrill Lynch Financial Centre, 2 King Edward Street, London EC1A 1HQ, at 08.30 UK time.  For further details please call Julian Wais (Cobham) on +44 (0)1202 857738 or Michael Harrison/Tom Williams (Brunswick) on +44 (0) 20 7404 5959.  The presentation will be webcast live on the Cobham website ( and the webcast and presentation will be made available on the website for subsequent viewing.