American firm likely to acquire British maker of air-to-air refuelling systems

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The Independent Online

A major American defence contractor could acquire the British company Cobham for up to £3bn, analysts said yesterday. According to new research from UBS, Northrop Grumman, GE or L3 Communications are the most likely buyers of the Dorset maker of air-to-air refuelling systems and antennae.

In a report highlighting companies most vulnerable to takeover, Cobham was singled out as a potential target due to its relatively low debt levels and digestible size in an industry populated by much larger international competitors.

The company is the midst of carrying out a restructuring which has seen it unload undesirable businesses. "If we combine this and a lowly geared balance sheet, we believe Cobham would make an attractive acquisition target," said UBS analyst Colin Crook.

Cobham is one of several mid-sized UK defence contractors that has long been considered as low-hanging fruit for American and European giants eager to increase their share of work from the Ministry of Defence.

A Cobham spokeswoman declined to comment. At the close of trading yesterday, its shares were at 199p, valuing it at £2.2bn. On past experience, including the recent purchase of Smiths Aerospace by GE, the bank said a bid premium could push its acquisition price as high as 265p a share, valuing it at £3bn.

The other UK stock reckoned to be ripe for a buyout is Centrica, which is one of the last remaining independent energy providers in the UK after most of its competitors – the latest of which was ScottishPower, bought by Iberdrola – were taken over by larger European groups. Scottish and Southern is the other remaining independent, though Centrica, as the single largest gas and electricity supplier in the UK, is seen as more attractive.

In a research note, UBS analyst Andrew Wright said: "We believe there is a larger range of potential acquirers of Centrica, and that it offers better fundamental value."