UK ‘minded to accept’ conditions on £2.6bn deal for defence specialist Ultra

The British government said it was “minded to accept” remedies to address national security concerns raised by the £2.6bn acquisition of defence specialist Ultra Electronics by rival Cobham.

Kwasi Kwarteng, business secretary, on Thursday launched a consultation into the undertakings offered by Cobham to acquire Ultra, which makes submarine-hunting equipment as well as control systems for the fleet of Trident submarines that carry the UK’s nuclear deterrent.

The government’s decision has moved the deal a step closer to being approved, subject to the responses in the consultation.

The deal has been seen as a test of ministers’ ability to protect key British strategic assets at a time when the government is promising to open the door to overseas investors after Brexit.

It also comes after criticism of the weakness in how the government handled similar previous deals, including the acquisition of Cobham itself by private equity group Advent in 2020.

The deal is still being assessed under the regime that was in place before the new National Security and Investment Act, which came into force this year. Advent agreed a number of binding commitments when buying Cobham but has still been able to sell off many of its assets.

A public intervention notice was issued in August last year about the Ultra deal on the grounds of national security, ahead of a probe by the Competition and Markets Authority.

Kwarteng has now called for views on the various proposals made by Cobham to address national security concerns. These proposals include creating two new “SecureCos”: UK legal entities which will oversee the UK Ultra facilities that deliver sensitive capabilities to the British government.

The government will appoint a non-executive director on the board of each to protect UK national security interests and scrutinise any disinvestment or divestment of sensitive capability.

The government would also be given “step-in rights”, similar to a special share that would allow the state to take control of the SecureCos on national security grounds.

The decision to move towards accepting the deal follows advice from the Ministry of Defence, and will mean that the CMA will not proceed with a “phase 2” investigation under the Enterprise Act.

Shonnel Malani, chair of Cobham, said this was “a positive step for investment in Ultra and in the Five Eyes alliance”. 

He added: “We have always been clear about our unwavering commitment to ensuring that UK’s national security is protected and believe these very extensive and robust undertakings will do just that.”