BAE Systems, VT Group plan joint bid on Babcock |
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Fri, 24 Mar 2006 07:30
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LONDON: Defence firm BAE Systems Plc. and shipbuilder VT Group Plc. are planning a joint takeover bid for support services company Babcock International Plc. The two firms said the talks are at an early stage and no approach has yet been made. The unification is intended to consolidate Britain's maritime industry.
Babcock International is into activities like flight training and maintaining naval bases for the defence department and looking after rail infrastructure engineering and network services for the power and telecoms industries.
BAE Systems and VT Group feel a restructuring of the naval surface ship and submarine sectors would benefit both the ministry of defence and the industry.
BAE Systems said in a statement that a number of exploratory discussions have taken place between industry participants about potential business combinations.
Britain's ministry of defence has been wanting to consolidate the country's shipyards in an effort to cut costs and improve efficiency. The defence procurement minister Lord Drayson in a white paper last year had said the sector had failed consistently to deliver satisfactory performance and it must be streamlined for greater efficiency and profitability.
The three entities are now in an alliance working on the government's 2.9-billion-pound aircraft carrier programme to build two gigantic warships. The carriers are being built at shipyards belonging to BAE Systems (at Govan and Barrow), VT (at Portsmouth) and Babcock (at Rosyth in Scotland).
Babcock International said it has not received any approach. The company's chief executive, Peter Rogers, acknowledging the interest shown by the two firms, however, said his company need not necessarily surrender its independence. In the six months ended November 2005, the company had made profits of 25 million pounds, an increase of 21 per cent. It claims it has an order book worth 2 billion pounds.
Analysts feel Babcock International could be of 625 million pounds in value.
While BAE has cash to spend, even though it is meant for deals in the U.S., it is not clear how VT would raise funds necessary for the buyout.
As reports of the possible offer came in, Babcock shares gained 11 pence to 270 pence, valuing the company at more than 550 million pounds.
VT's shares gained 2 pence to 426 pence yesterday.
Shares in BAE Systems ended 0.4 per cent lower at 417 pence.
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