Kwasi Kwarteng is set to approve the US takeover of one of Britain’s most sensitive defense companies after a transatlantic diplomatic row.
The business secretary said he was ready to accept the £2.6billion purchase of Ultra Electronics, which makes vital equipment for nuclear submarines, following promises made by its buyer, Advent International, based in Boston.
It comes after US officials threatened to limit defense cooperation with Britain if the deal is blocked.
Advent proposed placing Ultra’s top secret businesses into two separate legal entities. These will each have a government-appointed director to protect Britain’s national security interests and report to the state if the company tries to sell or cut important defense services.
As The Telegraph reported in February, Britain will have the power to take control of major operations if deemed necessary.
The Business Department said, “The Secretary of State considers that the proposed undertakings would mitigate the identified national security risks to an acceptable level and therefore proposes to accept the undertakings.”
Interested parties have until the end of July 3 to give their views on the arrangement before the UK gives final approval to the deal, but insiders are cautiously confident of success after convincing ministers .
Among other projects, Ultra manufactures essential equipment for the Royal Navy’s sonar systems.
At least half of the directors on the company’s board will be British, as will its chairman. The deal will last as long as Advent owns Ultra, which it is buying through one of its previous UK acquisitions, Cobham, a maker of in-flight refueling systems.
The deal is being touted as much stronger than earlier commitments, such as a “good custodian” promise Advent made ahead of its deal with Cobham, which was the prelude to a series of asset sales.
The government’s decision to indicate a deal is close means Advent has likely avoided a so-called phase two investigation, which would involve a deeper level of scrutiny from the competition watchdog.
Congress recently lifted restrictions on UK companies such as BAE Systems and Rolls-Royce.
US sources said in May that Mr Kwarteng’s foot-dragging on Ultra was damaging one of the UK’s most important relationships.
A senior US congressional intelligence official said, “At a time when allies like the US and UK seek deeper defense cooperation, we must remove barriers, not create them. »
On Thursday, Shonnel Malani, Chairman of Cobham, said: “Today’s announcement is a positive step for investment in Ultra and the Five Eyes alliance.
“We have always been clear about our unwavering commitment to ensuring that the national security of the UK is protected and we believe that these very large and robust undertakings will help achieve that goal.”
The step towards the sale is the latest step in a saga that began a year ago when Advent made an offer for Ultra after talks of a smaller-scale Ultra tie-up between the two parties broke down.
Mr Kwarteng ordered the Competition and Markets Authority to investigate the deal last August. He reported back in January and the deal had been largely in limbo since then.
As well as buying parts maker Cobham, Ultra and Typhoon Meggitt, which is being taken over by Parker-Hannifin, US investors have also been quietly taking stakes in larger UK defense companies.
This has led to a sea change, as US-based investors now hold nearly twice the value of shares in UK fund managers, analysis by The Telegraph revealed earlier this month.
A decade ago shipbuilder Babcock was 58% owned by British investment companies, but now that figure has fallen to 37%. For Rolls-Royce the move is 37pc to 7pc and for major defense contractor BAE the move is 38pc to 26pc.
Meanwhile, US investors scooped up the shares, owning 54% of BAE, 71% of Rolls and 49% of Babcock.
The change has raised concerns about whether investors could demand that less sensitive parts of companies be sold or that companies refocus to better reflect their owners.