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Babcock enters the VT and Mouchel fray

16 February 2010

VT Group, long embroiled in a takeover bid for services business Mouchel, has itself rejected outright an offer from engineering and defence services business Babcock.

Senior management at VT Group said accepting the £1.14bn cash and shares takeover bid by Babcock – undervalued as it is -- would be a retrograde move strategically for VT.

The former shipbuilder has been distancing itself from reliance on defence contracts, a major market for Babcock whose largest contracts include maintaining submarines and surface naval vessels around the country and also the training of engineers in such work.

But last year VT made the strategic decision to move away from defence work and sold its traditional shipbuilding interests to BAE Systems. Instead, VT has been trying to take over its smaller rival Mouchel that said is it considering VT’s latest bid.

Babcock said, in favour of a takeover of VT, that it could find around £27m in cost savings. But analysts believed that could mean job loses.

Babcock and VT are no strangers to each other when it comes to talking takeovers, the business and financial press have reported. The Guardian noted that insiders at Babcock, with around 17,000 employees, said that VT Group tried to buy Babcock four years ago, which shows the two companies are an obvious fit.

Aerospace and defence company BAE Systems and VT Group scrapped earlier plans in 2006 for a takeover of Bacbcoock International Group, as FM World reported at the time.

The Guardian noted that VT shares jumped nearly 15 per cent to 584p, a 12-month high on news of Backcock's offer. Babcock shares dropped 8.9 per cent to 505p.

This week VT boosted its offer for Mouchel by around 18 per cent to roughly £320m.