The announcement yesterday that Irish based hydraulics manufacturer Eaton Corporation had agreed to acquire the US based air-to-air refuelling equipment and electronic warfare systems and communications for military vehicles manufacturer Cobham Mission Systems (CMS) in a $2.83 billion deal as part of its plan to strengthen its aerospace and defence business will come as little surprise to those that had anticipated that the private equity firm Advent International which had acquired Cobham for £4 billion ($5.47 billion) last year would waste little time in breaking the company up.
This is not the first disposal that Advent has made and although not announced, as neither the Advent or Cobham name now appears on the list of partners in the AirTanker consortium – the assumption being that the former Cobham holding of 13,3% in this partnership has most likely been sold to the other partners in the venture. This makes perfectly good sense. In addition, last September witnessed the acquisition of Cobham Aviation Services by Draken International and just last week, the new owners confirmed that the name of that business has been changed to Draken Europe.
Not surprisingly, there have been more howls of anguish that the Cobham name is slowly but surely disappearing. Does that really matter? My own view remains that it does not. I continue to take the view that from an employment and economic standpoint, the future of the former Cobham subsidiaries is far more secure in the hands of those that can support and invest in them, think long term rather than short and that will not have the constant need to look over the shoulder for the views of large institutional investors.
Let’s be completely honest with ourselves – until 2010 Cobham was an excellent company with excellent management and for the most part, one that had a pretty good record of success.
Indeed, suffice to say that save for the odd misplaced communications equipment acquisition, Cobham had performed very well over the previous twenty years and for most of those years, the shares had rightly traded at a premium to the sector.
But from 2010 it all went downhill culminating in several CEO’s coming in, leaving or being sacked under a chairman for much of that time who not only chose his CEO’s badly but allowed the a too free hand. Result? You probably know the rest!
Having struggled to get a large rights issue completed in June 2016 and rid itself of the then CEO Bob Murphy who had championed a costly and subsequently failed diversification strategy aimed at reducing group exposure to defence, the chairman of six years John Devaney also stood down. By then Cobham was as far as many investors were concerned almost a basket case and David Lockwood was brought in as CEO to sort out the mess in January 2017.
But while Lockwood made great progress including overseeing a second £500 million rights issue, he also had to cope with a large number of problems from Cobham’s past including the need to take a £160 million charge to settle a dispute with its Boeing customer over delays and problems with the KC-160 fuel probe design.
By the time the company agreed a takeover deal with Advent in late 2019 it should also be remembered that close to 80% of Cobham subsidiaries and activity was US based. By then the company employed 10,000 people in 100 different countries, with only 18% of its employees being UK based. The UK accounted for just 8% of sales activity.
The bottom line was that even when Cobham had rid itself of some of the more ridiculous non-defence acquisitions made by previous management, regaining the trust of the investment community would be an uphill struggle. No company can stand still and if Cobham was to grow and expand it would need to look at other forms of ownership structure.
As many will remember, I fully supported the Advent deal to takeover Advent despite suffering wrath from many of those who I know well and who had wanted me to stand against it. I did so because I believed that the future of the parts of Cobham were worth more than the whole and most particularly, that the future employment for those people within those subsidiaries was far better if the company was ultimately broken up. I continue to stand by that decision today.
I doubt that Cobham’s founder the late Sir Alan Cobham whose daughter in-law made such a fuss about the possibility of losing the Cobham name when the agreed takeover deal with Advent was announced would have recognised the company he founded. He would have been horror stricken as to how the company had been run by fools between 2010 and 2016.
So, there we are. If the Cobham name disappears completely then so be it. Let’s look forward rather than backwards and forget all this nonsense about protecting a family name ad think more about protecting the future of jobs.
Many a good family name that once stood proud over manufacturing and engineering companies has disappeared during my lifetime, often because the second generation did not have the same ideals as the first generation of founders. All being well on Friday I might remind you of some of the many former quoted engineering companies that I have seen disappear in an update of a piece first put out by me in 2017.
CHW (London – 3rd February 2021)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785