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Ultra Electronics confirms advanced talks to acquire US partner Sparton, to strengths links with the US Navy.

Last updated: 03:25 26 Jun 2017 EDT, First published: 02:25 26 Jun 2017 EDT

Submarine
In 2014, ERAPSCO was awarded an indefinite delivery indefinite quantity contract by the US Navy which runs until 2019

Ultra Electronics PLC (LON:ULE) has confirmed it is in advanced discussions to acquire US firm Sparton Corporation (NYSE:SPA), a move which would strength the UK defence contractor’s links with the US Navy.

Sparton's Engineered Components & Products (ECP) division is Ultra's 50/50 partner in the long-standing ERAPSCO joint venture, which manufactures underwater sensors used to track and detect submarines.

READ: Ultra Electronics sees 2016 profits jump thanks to better margins and strong order intake

In 2014, ERAPSCO was awarded an indefinite delivery indefinite quantity contract by the US Navy which runs until 2019, with US$664mln of purchase orders received in the first four years and a further $160mln of purchase orders are expected to be added in the current year.

Ultra said if it should acquire Sparton, it intends to sell Sparton's other business, the Manufacturing & Design Services division.

The FTSE 250-listed firm said Sparton’s ECP Division of Sparton “is an excellent strategic fit with Ultra's existing activities in a market segment in which the Group has extensive experience and well established customers.”

Equity placing to part-fund deal

The firm added that the acquisition, if agreed, is expected to be funded by its existing debt facilities and an equity placing of new shares representing up to 9.99% of Ultra's existing ordinary share capital.

Ultra also said it intends to maintain a prudent funding structure for the group and have a medium-term target range for a net debt to underlying earnings (EBITDA) ratio of below 1.5x.

The statement concluded: “A further announcement regarding Ultra's potential interest in Sparton will be made if and when appropriate.”

The UK company will need the backing of the US government for the takeover.

Sparton shares have tumbled 25% over the past six months and the US group has previously said it was exploring the possibility of a sale.

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