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Defence firm Cobham makes $3.6 billion bid for UK rival Ultra Electronics

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(Reuters) -Defence group Cobham Ltd has made a $3.6 billion offer to buy UK-based Ultra Electronics, in a bid that could draw scrutiny in Britain due to Cobham's U.S. ownership.

Shares in London-listed Ultra, whose major customers include the British and U.S. governments, soared as much as 34% to a record high of 33.18 pounds on the news, below Cobham's offer price of 35 pounds per share plus a dividend of 16.2 pence a share.

The offer, the latest in a flurry of private equity interest in British companies driven by cheap valuations due in part to the pandemic and Brexit, is higher than a 28-pounds-per-share bid made by Cobham in June.

Cobham, based in Dorset, England and founded in 1934, is known for its pioneering air-to-air refuelling technology. It was bought last year by Boston-based private equity firm Advent International, potentially triggering national security concerns in Britain about a takeover of Ultra Electronics.

Ultra, which had rebuffed Cobham's June offer, said it was considering recommending the latest proposal to shareholders.

A purchase of Ultra would help Cobham tap the maritime defence market, where Ultra sells sensors, torpedo and radar systems, mainly to Western customers. The company also makes a range of defence communication equipment and forensics software.

Cobham, which makes devices used in electronic warfare and missiles, is inclined to offer undertakings to the British government with regards to national security, Ultra said.

Though national security concerns could arise, there are already other British defence companies with U.S. ownership, said Peel Hunt analyst Henry Carver.

"I don't think that's going to be a sticking point," Carver said, noting the strong defence relationship between the two countries. "This is an offer that shareholders cannot ignore ... we think it likely that a deal will be done," he said.

Cobham said in June it hoped to create a "global defence electronics champion" by buying Ultra as they provide complementary offerings to the United States, UK and other defence allies.

J.P. Morgan Cazenove is Ultra's financial adviser on the offer.

Reporting by Yadarisa Shabong in Bengaluru; Editing by Arun Koyyur, Shailesh Kuber and Susan Fenton

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