Could another defence deal be about to go south?
Following the debacle over the failed merger between BAE Systems and EADS, the market is getting nervous about the proposed takeover of Chemring - which makes flares and explosives - by US private equity group Carlyle. The predator has until 9 November to announce a formal offer, the second extension granted by the takeover panel.
But Chemring has just announced the sudden departure of chief executive David Price, who will leave immediately and will be replaced by ex-Wood Group executive Mark Papworth, who starts on 5 November.
The company statement gave no further details on Price's resignation but a spokeswoman told Reuters it felt it needed a change of leadership but should not be interpreted as relating to the Carlyle bid.
But Chemring shares have dropped nearly 8%, down 27.3p to 319p as the market drew the conclusion the bid was less likely with a new chief executive. Bank of America/Merrill Lynch commented the news would "spook the markets" and Paul Kavanagh of Killik & Co said the new man was unlikely to have been appointed to sell the business, and he suspected the deal would be called off. Guy Brown at Oriel Securities was less certain:
The move potentially flags that the deal is collapsing. It would appear odd to appoint a new chief executive with the belief the group is going to be taken over within a matter of weeks.
However this may also simply be a way for existing shareholders to strengthen their bargaining position. It could be a very short tenure for Mark Papworth if the deal closes on or before the 9 November 'Put Up or Shut Up' deadline but maybe he has come in on this basis.
We continue to see value in Chemring. If the deal collapses and the stock drops, we would see this as an opportunity.
