Hot Defence Sector

Courtesy of Kim Jong Un, President Trump and assorted self created / deliberately created sources of conflict, the defence sector is hotter than July – as Stevie Wonder would say. It is also in consolidation mode, which started with Rockwell Collins / United Technologies in the US, and is set to spread to Europe. Because of this deal major players will be looking to scoop up defence companies, both great and small.

Cobham’s Fundamental Recovery
Closer to home and we have UK aerospace / defence group Cobham (COB.L). The shares were at the start of 2015 standing as high as 257p, versus around 135p now. However, in any M&A battle they could spike back towards the 200p, as a fundamental recovery at the company starts to take place in the wake of a strategic review.

Cobham is stripping out the non aerospace and defence part of the business. Wall Street Wires contacted Cobham and it was confirmed that a strategic review is being undertaken. But it was not denied that this process may involve an offer being made for the whole company, or that such talks may have taken place.

Therefore, Cobham’s strategic review includes not only selling non core business, it could include allowing the company to be taken over. Its advisors in the past have been Bank of America, Barclays and JP Morgan.

Random Nuclear Missile Firing

In addition the fundamental Cobham recovery is not only catching the eye of  industry players, but private equity. In the wake of the Jong-Un’s random missile firing – soon to be nuclear, the green light has been given for countries around the world to beef up their defence capabilty, with of course everyone from South Korea to Saudi Arabia involved.

The MOAB Scenario

The recent announcement by President Trump regarding a mission to Afghanistan to “kill terrorists” (effectively anyone native to the region) came in the wake of his “Mother Of All Bombs” (MOAB) manoeuvre previously.

UK Spillover

Parties potentially looking at Cobham including private equity and industry players. In the private equity arena it would be people like KKR and Carlyle. In the industry part we have BAE Systems and the likes of Lockheed Martin. Given that the sector is in play in the wake of Rockwell Collins / United Technologies, we would already have expected to see this spill over to the UK.