Will the government dare to block the private equity takeover of defence contractor Cobham?

The Business Department has referred Advent International’s much-criticised £4bn bid to the Competition and Markets Authority citing national security concerns, writes James Moore

Cobham has pioneered air to air refuelling (Reuters)

The government’s decision to call in the proposed takeover of defence contractor Cobham is something that scarcely seemed possible for this administration: it’s made the right decision.

I suppose even a stopped clock tells the right time twice a day.

The £4bn bid tabled by Advent International, one of those US private equity outfits with fingers in more pies than Greggs cooks up on a Monday morning, is partly the consequence of the government’s string of bad decisions relating to Brexit.

These have served to crater the pound on the global currency markets, making sterling-denominated companies like Cobham cheap for overseas bidders.

Its proposed takeover is particularly galling given that it had been on the road to recovery after a terrible two years between 2015 and 2017, during which time it issued five profit warnings.

That’s far from the only reason the deal has faced criticism from unions, some MPs, the founding family; who’ve variously voiced fears about the impact on jobs, the UK’s industrial base, its national security.

It is on the latter grounds that business secretary Andrea Leadsom has called in the bid, which will now go through to a first-stage assessment by the Competition and Markets Authority (CMA).

Advent sought to address the criticism by making all the usual promises about investing in the company and the UK.

But as a union source put it to me: “Look at the history of private equity firms in this country. They’ve left a trail of devastation in their wake.”

This has led to such promises being viewed with some scepticism by the public too. Its disquiet over foreign takeovers has been building for years now.

The government has responded by taking a marginally more assertive approach with respect to them.

The Enterprise Act was amended last year to make it easier to intervene, and there was a certain synchronicity with the Cobham referral coming just a day after a CMA report on another controversial private equity takeover – of Inmarsat, Britain’s biggest satellite company – was submitted to the Department for Digital, Culture, Media and Sport.

However, it should be noted that there has yet to be a phase-two investigation on “public interest” grounds since the 2002 act came into force, despite the 16 interventions that have occurred since then. For the record, nine were on the grounds of national security, six focused on media plurality and one looked at financial stability.

It will be interesting to see how it goes down with the Americans if Cobham becomes the first, but having stoked the fires of nationalism, it would be a bad look for a Conservative Party funded by hedge-fund mangers and casino capitalists to be seen to be facilitating the sell-off of prime British assets on the cheap.

Ms Leadsom could find herself on the horns of a painful dilemma.

Where there’s sufficient will to halt a deal there’s usually a way, as the French made clear when they declared Danone’s yoghurt to be a strategic national asset and used that to send Pepsi packing.

But the UK’s approach has historically been very different, and its rules pertaining to takeovers and the public interest are rather weak. Consumers sometimes get a look in on competition grounds. The CMA used those to block Sainsbury’s controversial attempt to merge with Asda. But they don’t really allow for consideration of the impact of deals on workers, or on the nation’s industrial base, for example.

Perhaps they should. There is a strong body of opinion that holds that Britain should remain “open for business” and leave questions raised by takeovers and mergers to shareholders unless there are real and obvious competition issues.

But the big institutional ones that hold the power have proved time and again that they struggle to act in their own interests at the best of times and nearly always put a quick buck over long-term value creation.

Advent’s tilt at Cobham, facilitated by the weakness of the pound, and the company’s relatively recent emergence from a sea of troubles, strengthens the case for change even if history suggests it will win out in the end. But perhaps Leadsom could yet mimic that stopped clock and surprise twice.