Defence services firm agrees takeover

DEFENCE services company VT Group today succumbed to takeover interest from rival Babcock International after agreeing a deal valuing the firm at £1.3bn.

The former Vosper Thornycroft business had previously resisted Babcock's approaches, but said the recommended cash-and-shares offer was "fair and reasonable".

VT chairman Mike Jeffries said: "The VT board believes that Babcock's offer represents an attractive proposition for VT shareholders both through the immediate offer premium and through the opportunity to benefit from the synergies available from combining our two businesses."

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Babcock, which employs around 17,000 people worldwide and generated revenues of almost 2bn last year, has seen several approaches to VT snubbed in the past.

Babcock made two offers in February of 1.1bn and 1.2bn, but was accused by VT of significantly undervaluing the business.

Southampton-based VT, whose business focusses on defence, communications and educations and skills services, also previously warned of Babcock's exposure to Ministry of Defence spending, which it said could be susceptible to budget cutbacks following the election.

But today VT accepted the revised bid and said directors would unanimously recommend that shareholders vote in favour of the deal, which could be completed by the end of July.

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VT shareholders would own around 36 per cent of the combined group if the deal gains approval.

Babcock said the enlarged group would have a broader range of expertise and would result in merger benefits of around 50m a year, with additional annual financial efficiencies of 8m.

The firm said the enlarged group would be better able to take on bigger and more complicated contracts.

Particular opportunities are seen in the UK air, land and sea defence markets, while the firm said the merged group would have a strong nuclear business with around 3,000 employees servicing defence and civil nuclear sectors.

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Babcock said the combined business would have revenues of around 3 billion and an order book of about 10bn.

Mike Turner, chairman of Babcock, said: "We are delighted to have reached agreement with the board of VT to recommend our compelling offer for the company.

"The acquisition of such a high quality and complementary business is in line with our strategy to be the leading engineering support services company in the UK.

"We look forward to bringing the enhanced capabilities of the enlarged Babcock to new and existing customers."

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In a trading update alongside the offer statement today, Babcock said its performance for the year to March 31 was in line with expectations.

It said it was confident of long-term growth prospects, with the coming financial year building on its "excellent progress".

VT also said it continued to perform in line with management expectations.

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