13th May 2008 06:01
13 May 2008
COBHAM REACHES AGREEMENT TO PURCHASE M/A-COM, A GLOBAL LEADER IN RADIO FREQUENCY AND MICROWAVE, FOR US$425 MILLION
Transaction Highlights
Cobham has agreed to purchase the Radio Frequency components and subsystems business of M/A-COM, one of the largest Original Equipment Manufacturers of microwave subsystems in the world, from Tyco Electronics for US$425 million in cash with an effective price of US$380 million after an allowable tax expense relating to goodwill amortisation. The transaction represents another significant step forward in Cobham's growth strategy;
M/A-COM's aerospace & defence business, comprising just under 40% of revenue, is highly complementary to Cobham's existing Defence Electronic Systems business and will bring accelerated development of superior products with enhanced capabilities, together with additional subsystem capability and strong customer relationships. While the transaction will provide an immediate resolution for the long-term future for the aerospace & defence business, Cobham plans to divest the commercial business as it is non-core to the Group's strategy. Accordingly, as far as the commercial business is concerned, it will be necessary for a divestment process to continue;
Cobham estimates that the effective price for the aerospace & defence business represents a multiple of approximately 8x estimated 2008 EBITDA;
It is expected that the aerospace & defence business will be earnings enhancing in 2008 and will cover its cost of capital in the second full year of ownership.
Summary
Information on the Aerospace & Defence Business
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.
The CDES management team has a long-established track record of transitioning and integrating new acquisitions (see note 4). It is intended that the active microwave activity in San Jose, California and Lowell, Massachusetts 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. An outline of the activities within M/A-COM's commercial business is in note 5 below.
Financial Information
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 million revenue and a 24% return on invested capital. With Lansdale and M/A-COM we will have pro-forma revenue of $850 million in Defence Electronics, which is at the heart of Cobham's strategy."
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ENQUIRIES
Cobham plc +44 (0)1202 857738 (on the day)
Allan Cook, Chief Executive +44 (0)1202 882020
Warren Tucker, Chief Financial Officer +44 (0)1202 882020
Julian Wais, Director of Investor Relations +44 (0)1202 857998
Weber Shandwick Financial
Susan Ellis +44 (0)20 7067 0700
Presentation and Dial-in Facility
An analyst and investor presentation on the acquisition with Allan Cook, Cobham Chief Executive and Warren Tucker, Cobham Chief Financial Officer will be held at 14.00 on Tuesday, 13 May at Cobham's London office, 11 Stanhope Gate, W1K 1AN. There will be a dial-in facility to accompany the call. The dial- in number is 020 7162 0025.
A playback facility will be available on the Cobham website (www.cobham.com) for 14 days following the announcement.
Notes
1. Cobham plc is an international company engaged in the development, delivery and support of advanced aerospace and defence systems for land, sea and air platforms. The Company specialises in the provision of components, sub-systems and services that keep people safe, improve communications and enhance the capability of aerospace and defence platforms.
2. Cobham Defence Electronic Systems (CDES) designs and manufactures microwave components, integrated assemblies and sub-systems for the US Department of Defense and other military and government customers around the world. It is a leading developer of all classes of air, ground and shipboard antenna subsystems, positioners, radomes, high-power microwave components and integrated assemblies, and is the market leader for many niche microwave products. CDES is also the world leader in advanced tactical military vehicle intercom systems and soldier and ground vehicle situation awareness products.
3. In certain circumstances, goodwill amortisation is a deductible expense for tax purposes. In this situation, the net present value of the tax benefit is calculated and is deducted from the headline price to present an effective acquisition price.
4. Integration and restructuring costs arising, consistent with the existing Cobham policy, will be offset against Cobham's cumulative portfolio restructuring profits to date, to the extent these have not been previously utilised.
5. The commercial business of M/A-COM comprises a number of products including integrated circuit, power transistors and diode segments within the semiconductor market for use in wireless communications and industrial/military and consumer applications, infrastructure/components for wireless applications such as cellular base stations and WiMAX infrastructure using RF, microwave and semiconductor based components and radio frequency identification components for use in inventory management and asset tracking applications.
6. UBS Securities LLC acted as sole financial advisor to Cobham on this transaction.
Nothing in this press release should be construed as a profit forecast or be interpreted to mean that the future earnings per share of Cobham will necessarily be the same as, or greater than, the earnings per share for completed financial periods.
This document contains 'forward-looking statements' with respect to the financial condition, results of operations and business of Cobham and to certain of Cobham's plans and objectives with respect to these items.
Forward-looking statements are sometimes but not always identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans', 'targets', 'goal', or 'estimates'. By their very nature, forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or will occur in the future.
There are various factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies, political situations and markets in which the Group operates; changes in government priorities due to programme reviews or revisions to strategic objectives: changes in the regulatory or competition frameworks in which the Group operates; the impact of legal or other proceedings against or which affect the Group; changes to or delays in programmes in which the Group is involved; the completion of acquisitions and divestitures and changes in exchange rates.
All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Cobham or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Cobham does not intend to update these forward-looking statements.
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