Cobham to Buy Aeroflex - Analyst Blog

Wireless communications company Aeroflex Holding Corp. ARX has inked a definitive merger agreement worth $920 million with Cobham plc, a British defense specialist. With an enterprise value of around $1.46 billion, the transaction is expected to close in the third quarter of 2014, subject to customary shareholder and regulatory approvals. Cobham will also assume around $540 million of Aeroflex's net debt.

Following the announcement of the proposed merger, shares of Aeroflex scaled a new 52-week high of $10.47 in intraday trading amid huge volumes. The stock price closed marginally lower at $10.42, posting an increase of 25.4% in the session.

Merger Specifics

Per the agreement, U.K.-based Cobham will pay $10.50 for each share of Aeroflex, representing a 26.1% premium over Aeroflex's closing share price on May 19, 2014, the trading day prior to the announcement of the merger.

Cobham has already received the consent of financial investors like Veritas Capital Partners LLP, Golden Gate Private Equity Inc. and GS Direct LLC, the investment banking arm of The Goldman Sachs Group, Inc. GS who holds 76.3% of Aeroflex's shares. The board of directors at Aeroflex is suggesting shareholders to approve the merger.

Expected Synergies

Aeroflex and Cobham seem to be a natural fit as they broadly operate in complementary segments of similar markets. Aeroflex manufactures components used in defense, aerospace, manufacturing and mobile and broadband communications. About 70% of its revenues are generated from commercial customers, while the balance is accounted for by defense and security. Cobham operates as a leading British aerospace and defense supplier, with the U.S. defense generating over a third of its sales.

Aeroflex expects the merger to unlock immediate, deep value for its shareholders as the company is likely to capitalize on Cobham's bigger scale of operations and extensive market presence. The deal holds the potential to broaden Aeroflex's clientele and give it access to the combined entity's wide resource pool.

For Cobham, the transaction marks its biggest deal ever and will enable it to venture into fast-growing U.S. commercial markets including microelectronics and wireless civil communications.

Roadblocks

A number of law firms including Rosen Law Firm, P.A., Levi & Korsinsky, Harwood Feffer LLP and Kirby McInerney LLP have begun investigating potential claims against Aeroflex concerning the acquisition.

The firms will inspect whether the board is fulfilling its fiduciary responsibilities toward its shareholders by maximizing company value and obtaining full and fair consideration for their stake in the company.
    
Aeroflex currently holds a Zacks Rank #3 (Hold). Other stocks in the industry that look promising and are worth a look include Applied Micro Circuits Corporation AMCC and Exar Corp. EXAR, each sporting a Zacks Rank #1 (Strong Buy).