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Ultra Electronics confirms possibility of Sparton acquisition

By Josh White

Date: Monday 26 Jun 2017

Ultra Electronics confirms possibility of Sparton acquisition

(ShareCast News) - Ultra Electronics was forced to respond to press speculation over the weekend, after Mergermarket reported it was in talks to acquire its underwater sensors joint venture partner in a bid to strengthen its contractual ties with the US Navy.
The FTSE 250 company said it could confirm it was in "advanced discussions" to acquire NYSE-listed Sparton Corporation, subject to regulator and shareholder approvals.

Should Ultra acquire Sparton, the board said it intended to sell Sparton's other business, the Manufacturing & Design Services (MDS) division.

Sparton's Engineered Components & Products (ECP) division is Ultra's 50-50 partner in the long-standing ERAPSCO joint venture.

"In 2014, ERAPSCO was awarded an indefinite delivery indefinite quantity contract by the US Navy which runs until 2019," the Ultra board explained in a statement.

"$664m of purchase orders have been received in the first four years and a further $160m of purchase orders are expected to be added in FY18."

Ultra's participation in the ERAPSCO joint venture had brought an "extensive knowledge, experience and proven performance" to a major customer, the US DoD, the board added.

"Ultra is in a unique position to 'preserve the status quo' for the US Navy and help to ensure that the delivery of critical assets to this major customer is not interrupted."

The board said the principal reasons for Ultra pursuing the proposed acquisition of Sparton included the idea that the ECP division of Sparton was an "excellent" strategic fit with Ultra's existing activities, in a market segment in which the group had "extensive experience" and "well established" customers.

It also said the acquisition would enhance Ultra's continuing relationship with a major customer, increase its exposure to the growing sonobuoy segment, provide "attractive" financial returns for Ultra, and allow Ultra to secure an "important" revenue and earnings stream.

"The directors of Ultra intend to maintain a prudent funding structure for the group and have a medium-term target range for a net debt to EBITDA ratio of below 1.5x.

"The acquisition, if agreed, is expected to be funded by Ultra's existing debt facilities and an equity placing of new shares representing up to 9.99 per cent. of Ultra's existing ordinary share capital."

The acquisition of Sparton and the disposal of MDS, if completed, were not expected to alter Ultra's objective of returning to a through-cycle target of 85% cash conversion in the medium term.

"A further announcement regarding Ultra's potential interest in Sparton will be made if and when appropriate."

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