The UK's Serious Fraud Office has opened a criminal investigation into "suspected corruption" in the conduct of Ultra Electronics' Algeria business.
The defence firm said this morning that the probe relates to "conduct of business in Algeria by Ultra, its subsidiaries, employees and associated persons".
Ultra said the decision follows a "voluntary self-report" by the firm to the SFO and that it continues to co-operate with the SFO.
Shares in the company dropped nearly eight per cent in early trading.
Given the stage of these matters, it is not possible to estimate reliably what effect the outcome of this matter may have on the group. The company will provide a further update as and when appropriate.
The SFO confirmed it had opened a criminal investigation and said in a statement: "No further information can be provided at this time as the investigation is live."
The news comes after the FTSE 250 firm last month revealed the former boss of BBA Aviation, Simon Pryce, would be taking the reins as chief executive officer in June.
At the time, Ultra said the UK market had become increasingly difficult, citing "mounting pressures" in the funding of UK defence programmes which had then affected a number of its UK orders budgeted for the year.
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Shares in the company were rocked in March after Ultra announced it was scrapping a deal to buy US rival Sparton.
It had been planning a $235m deal to buy Sparton, but announced in its annual results that it was scrapping the proposal, sending shares slumping by a fifth.
Ultra had agreed to buy the US firm, which makes anti-submarine warfare devices used by the US Navy, in July.
However, following discussions with the US Department of Justice over competition concerns, Ultra and Sparton "mutually agreed" to terminate the merger, the firm said.
AJ Bell investment director Russ Mould said at the time that 2017 had been an "appalling" year for Ultra, adding that uncertainty was likely to "hang over the business" until the previously delayed UK defence review was completed in the summer.