The US takeover of UK defence
Sell-off of key defence assets is hardly conducive to an independent foreign policy
“Yet another British defence manufacturer has fallen to the American greenback,” said Maggie Pagano in the Daily Mail. The board of Ultra Electronics – a major supplier to the Royal Navy – has agreed to a £2.6bn takeover by rival Cobham, which is owned by the US private equity group Advent. This means around £10bn worth of Britain’s most high-tech defence equipment has been sold to the US in a matter of months. Among other things, Ultra “makes highly sensitive equipment” for Britain’s nuclear fleet, said Alan Tovey in The Daily Telegraph. No wonder Whitehall’s “defence heavyweights” are so agitated. Moreover, Advent’s record hardly instils confidence. When it bought Wimborne-based Cobham for £4bn 18 months ago, it pledged to be a “good custodian” of the company – yet it almost immediately sold “a string of its assets”.
“First Cobham, now Ultra Electronics and Meggitt still to come,” said Nils Pratley in The Guardian. “The sense of the UK’s defence industry being re-ordered and re-parcelled for the benefit of US private equity players and large US corporates is overwhelming.” The official line is that Business Secretary Kwasi Kwarteng is “closely” monitoring the deal. But there is little sign “of strategic thinking on the part of the UK Government” in this rush of US dealmaking, which raises a host of questions: “Does the Government think it is important to have a thriving UK-owned specialist defence industry or not? Is there any point at which it would try to slow the current US-led takeover spree?” And does it really want private equity selling off “bits of the UK defence industry to foreign buyers for a profit”, asked Alistair Osborne in The Times. If not, it better scupper the deal, or extract some “watertight” legal commitments.
“You can’t really blame Ultra’s board for acquiescing to a deal at a record price,” said Helen Thomas in the FT. But ministers should be “sceptical”. As analyst Nick Cunningham of Agency Partners points out, UK defence firms, including Ultra, “were called upon to produce bespoke technology at speed” for the conflicts in Afghanistan and Iraq. “Yes, the US is an ally. But it is proprietorial about US-based defence technologies.” One thing seems clear: fears that stronger government oversight would have a “chilling effect” on dealmaking were unfounded. “Political uncertainty is apparently no match for the cheaper valuations offered by the UK market.” Perhaps buyers have looked at a government and Business Secretary “whose instincts tend towards the laissez-faire … and concluded it’s business as usual”. If ever there was a case that should prove them wrong, it is Ultra.