Ultra, Sparton Sink as U.S. DOJ Blocks Transatlantic Merger

(Bloomberg) -- Shares of British defense firm Ultra Electronics Holdings Plc and American peer Sparton Corp. plunged on Monday after the surprise collapse of a planned merger following a U.S. antitrust review.

The Department of Justice opposed the deal and intends to open a competition probe into Ultra's joint venture with Schaumburg, Illinois-based Sparton, Ultra said alongside its full-year results on Monday. The venture supplies the U.S. Navy with sonobuoys -- signaling systems that are launched from aircraft and ships during anti-submarine warfare.

Shares in Greenford, England-based Ultra fell as much as 19 percent in London, the most since November, when it warned funding pressures in the U.K. defense sector would hit full-year profits. Sparton dropped as much as 25 percent in New York, the most intraday since 2009.

The Navy wants to increase competition in the production of sonobuoys as demand rises along with heightened geopolitical tensions, in particular a bigger threat to the U.S. East Coast, Ultra Chief Executive Officer Douglas Caster said by phone.

The company's 2017 underlying profit before tax fell 8.4 percent year-on-year. Caster said order intake picked up toward the end of the year. The company will use funds it raised to finance the Sparton acquisition to repurchase 134 million pounds ($150.5 million) in stock.

The termination of the Sparton deal was a negative surprise, as the combination was a “strategically positive move,” Berenberg analyst Andrew Gollan, said in an email. The company reiterating its trading outlook was “encouraging,” he wrote.

Sparton said in a statement that it plans to “re-engage with parties that previously expressed an interest in acquiring all or a part” of the company.

--With assistance from Beth Mellor

To contact the reporter on this story: Joe Easton in London at jeaston7@bloomberg.net.

To contact the editors responsible for this story: Simon Lee at slee936@bloomberg.net, Brian Lysaght, Paul Jarvis

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