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From Antitrust Law Daily, March 5, 2018

Justice Department, U.S. Navy concerns lead Ultra Electronics, Sparton to drop merger

By Jeffrey May, J.D.

Defense industry players Ultra Electronics Holdings plc and Sparton Corporation have abandoned plans to merge after the Department of Justice and the U.S. Navy raised questions about the deal. Today, Sparton announced the termination of their July 7, 2017 merger agreement. The Justice Department also issued a statement, saying that the transaction—valued at more than $234 million—threatened to permanently combine the only two qualified suppliers of sonobuoys to the U.S. Navy.

Sonobuoys are used in support of multiple underwater missions for detection, classification, and localization of adversary submarines during peacetime and combat operations, the Justice Department explained. Ultra has had a 50/50 sonobuoy joint venture with Spartan’s Engineered Components and Products division since 1998—ERAPSCO.

The combination of U.S.-based Sparton and U.K.-based Ultra apparently raised red flags at both the Justice Department and at the U.S. Navy. According to Spartan, both agencies suggested that "Sparton and Ultra should enhance its ability to independently develop, produce and sell sonobuoys and over time work toward the elimination of their use of Sparton’s and Ultra’s ERAPSCO joint venture for such activities." According to Ultra, ERAPSCO has a long-standing position as a provider of all current production sonobuoys to the U.S. Navy.

Sparton also disclosed that the Justice Department was prepared to go to court to block the deal. Further, the Justice Department intends to investigate the parties’ ERAPSCO joint venture.

Companies: Sparton Corp.; Ultra Electronics Holdings plc

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