Ultra Electronics plunges as Sparton deal nixed, earnings fizzle

On top of a damp squib set of annual results, Ultra Electronics has revealed that its agreed takeover of US-based rival Sparton has been blocked on antitrust grounds.

The FTSE 250 company, which last July had agreed the $234.8m purchase of Sparton, said it would now return the net £134m cash it had drummed up for the purchase back to shareholders via a share-buyback.

Ultra also reported revenues down 1.3% to £775.4m for calendar 2017, with underlying profit before tax shrinking 8.4% to £110.0m and earnings per share crumbling 20% to 66.2p due to the shares issues in the Sparton placing.

But Ultra said discussions with the US Department of Justice had seen competition concerns raised, leading Ultra and Sparton to mutually agree to terminate the merger.

Ultra and Sparton will continue as joint venture partners in the ERAPSCO partnership, said Douglas Caster, the former chief executive officer who was brought back into an executive chairman role after Rakesh Sharma stepped down as CEO alongside a profit warning in November.

Caster said 2017 was a "challenging year" for the company's core defence markets as it was hit by delays to a number of programmes and contracts in the second half of the year. But he said the resulting extra focus on costs and efficiencies and the group's 2018 opening order book of £914m and £1.5bn of further mid-term orders expected from long-term projects left him confident about the future.

As regards Sparton, a fellow maker of sonobuoys, he said: "Ultra has supplied the US Navy with sonobuoys since the 1940s, whether through its predecessors, ERAPSCO or other affiliates," said Caster. "With our world-leading technology in sonobuoys, Ultra expects to continue to serve this important customer for years to come.

"Through the share buy-back announced today, we intend to return the net proceeds of the previous equity raise to shareholders, whilst preserving balance sheet strength."

He reiterated the board's previous expectation to make "modest progress" in underlying revenue and operating profit at constant currencies in 2018, after allowing for investments in research and development and capital expenditure.