Wednesday 23 May 2018

Ultra Electronics shares dive after competition fears kill Sparton merger

The group was down 12% in morning trading on the London Stock Exchange.

Ultra Electronics has taken a hit (Dominic Lipinski/PA)
Ultra Electronics has taken a hit (Dominic Lipinski/PA)

By Ben Woods, Press Association Chief City Correspondent

Shares in Ultra Electronics have come under fire after the defence firm’s tie-up with America’s Sparton was torpedoed by competition concerns.

The group was down 12% in morning trading on the London Stock Exchange, with the two firms “mutually terminating” the deal following fears raised by the US Department of Justice (DoJ).

Ultra said it will now push through a £134 million share buy-back to return equity raised from investors to secure the deal.

The disappointment was compounded by lacklustre annual results from Ultra, with underlying pre-tax profits sinking 8% to £110 million.

It's fair to say that 2017 was an appalling year for Ultra Electronics and it now suffers another setback Russ Mould, AJ Bell investment director

Revenues were also down 1% to £775.4 million, despite its order intake climbing 16% to £901.4 million for the year ending in December 2017.

Executive chairman Douglas Caster said 2017 had been a “challenging year” across the group’s core defence markets due to a string of delayed contracts.

On the collapsed deal, he said: “The proposed merger with Sparton was initiated following Sparton’s decision to put itself up for sale in April 2016.

“We are disappointed with the outcome of the antitrust review that has led to Sparton’s and Ultra’s decision to mutually terminate the merger process.

“This decision means that the relationship between Ultra and Sparton continues for now as joint venture partners through the ERAPSCO JV.

“Ultra has supplied the US Navy with sonobuoys since the 1940s, whether through its predecessors, ERAPSCO or other affiliates.”

Talks between the two firms got off the ground in July last year after Michigan-based Sparton put the business up for sale in April 2016.

However, the merger was dealt a hammer blow by the US DoJ’s competition concerns over the proposed tie-up.

Russ Mould, AJ Bell investment director, said: “It’s fair to say that 2017 was an appalling year for Ultra Electronics and it now suffers another setback.

“Anti-trust concerns have led Ultra to terminate its proposed merger with anti-submarine warfare sonobuoys group Sparton.

“Last year saw Ultra experience weak cash generation and subsequent downgrade to revenue and profit guidance amid a tough UK Ministry of Defence spending environment.

“That led to the departure of chief executive Rakesh Sharma.

“Uncertainty is likely to hang over the business near-term until the previously delayed UK defence review is completed in the summer.”

Middlesex-based Ultra spans the defence and aerospace, security and cyber, and transport and energy markets.

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