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Cobham Has $1.1 Billion Available for Possible Takeovers

Cobham Plc (COB), the world’s largest maker of airborne-refueling equipment, has more than 700 million pounds ($1.1 billion) available for acquisitions to accelerate its growth strategy amid shrinking defense budgets.

The maker of defense electronics and surveillance gear may seek targets in commercial aviation, communications, intelligence and security-equipment, to accelerate expansion, Chief Financial Officer Warren Tucker said in a telephone interview yesterday. The company is unlikely to diversify into a completely unrelated area, he said.

U.S. and European defense spending cuts are prompting companies to seek savings and expand in growth sectors, such as civil aerospace. The company will also target further expansion into markets such as Brazil and India, mainly by providing equipment to prime contractors, according to the CFO.

“Cobham has a good M&A track record and effectively integrating bolt-on acquisitions has been a key tenant of the company’s strategy,” said Jason Adams, an analyst at Nomura, in a note today. “But with heightened uncertainty of global defense budgets, I expect we’ll see Cobham use acquisitions to further diversify the portfolio and grow its commercial businesses.” He has a “reduce” rating on the stock.

Cobham provides about $1.5 million worth of parts per Eurofighter combat aircraft, depending on variants. India may select the winner for an order for 126 combat aircraft from contenders Dassault Aviation SA and Eurofighter as early as next month. Although acquisitions in countries like India “are not easy” the company is constantly on the lookout for purchases and joint ventures, Tucker said.

Savings Measures

Cobham could roll out additional cost-reduction measures should the defense and security environment demand deeper cuts. Conditions in the U.S. remain “challenging” and organic revenue contracted “marginally” in the first nine months of the year, the Wimborne, England-based company said in a statement on Nov. 9.

“At present we have two to three disposals on the go and we always said that examining our portfolio never stops,” Tucker added. Cobham sold a missile-testing and consultancy unit to Parsons Corp. for $350 million in October.

Cobham rose 1.3 pence, or 0.7 percent, to 179.2 pence at 12:34 p.m. in London, giving the company a market value of 1.9 billion pounds.

To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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