News Column

Cobham Boost Communications Unit With Aeroflex Holding Buy

May 20, 2014

Steve McGrath

LONDON (Alliance News) - Defence and aerospace products supplier Cobham PLC Tuesday said it will buy US-based test systems and wireless communications business Aeroflex Holding Corp for about GBP869 million in cash, including debt, a deal that will further grow Cobham's connectivity business and boost its earnings.

Cobham bought similar businesses Thrane & Thrane in 2012 and Axell Wireless in 2013, but this deal is bigger, with Aeroflex expected to contribute about 17% of the combined company's revenue. It is expecting to eke about GBP50 million of annual cost synergies out of the deal, for a total investment of about GBP128 million.

"The acquisition of Aeroflex is absolutely aligned with our strategic objective to obtain more exposure to growing, commercially oriented end markets that increasingly demand more data, connectivity and bandwidth," Cobham Chief Executive Bob Murphy said in a statement.

"Aeroflex has maintained consistently high levels of company funded Research & Development resulting in a pipeline of products that we expect to further underpin our growth profile, with the business expected to deliver highly attractive financial returns," Chairman John Devaney added.

Cobham is paying USD10.50 per Aeroflex share, valuing its stock at about GBP548 million, and is taking on its debt of GBP321 million. That is about 10.5 times forecast 2014 adjusted earnings before interest, tax, depreciation and amortisation.

It expects the acquisition to boost its underlying earnings in 2015, and expected returns will beat Cobham's cost of capital in the third full year of ownership.

Aeroflex is headquartered in Plainview, New York, and provides a range of products including radio frequency and microwave integrated circuits, components and systems used in the design, development, test and maintenance of high performance equipment for critical and harsh environments, and wireless communication systems.

Cobham will finance the deal through its bank facilities, but also launched a placing of about 65 million shares, or 6% of its current share capital, so that it maintains an "appropriate" level of gearing.

"Our snap reaction to the proposed acquisition of Aeroflex is that it is a quite complex business that may take us some time to understand. Nonetheless, it also appears to be a decisive step forward in implementing Cobham’s strategy, something we welcome. If Cobham can achieve the synergies identified and if – like Cobham – Aeroflex returns to organic growth in FY15, the outlook for the enlarged group will be positive, in our view," Jefferies said in a note to clients.

The bank has a Buy rating on Cobham's stock.

Cobham shares were up 1% at 315.3 pence early Tuesday.

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Source: Alliance News

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