Chemring Group (LON:CHG), the FTSE 350 defence group, has shelved plans to buy US ammunition manufacturer The Allied Defense Group (ADG) after the US Department of Justice said it was planning to look deeper into allegations of bribery within one of ADG’s business units.

Chemring first announced the £36m acquisition on January 19, claiming the move would boost its presence in the global ammunition and ammunition-related service markets. However, on the same day ADG received a subpoena from the DOJ requesting that it produce documents relating to its dealings with foreign governments. In addition, an employee of ADG’s US subsidiary, Mecar USA was indicted by the DOJ for allegedly engaging in schemes to bribe foreign government officials to obtain and retain business. The unsealed indictment of this employee and the DOJ's press release indicated that the alleged criminal conduct was on behalf of another US company unrelated to ADG or Mecar US.

Until now, the DOJ’s investigations have focused on matters related to the indicted former employee of Mecar US. However, the DOJ has now indicated that it wants more information from ADG and is set to expand its review. Chemring said that in light of the news it was presently “unwilling to consummate” the acquisition of ADG as part of the original merger agreement. The company is now reviewing its options, which it said may include a restructuring of the original transaction.

Chemring makes a wide range of products for the military including pyrotechnics, ordnance disposal systems, munitions and countermeasures and was eyeing ADG for its complementary markets, products and technologies. ADG has a strong presence in the Middle East, complementing Chemring's current emphasis on NATO customers. The company’s shares opened down 2% at 3101p.

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