BAe asks shareholders about bid

RUSSELL HOTTEN

At the Paris Air Show

British Aerospace is certain to delay any response to GEC's pounds 835m counter- bid for VSEL until after this week's Paris Air Show. It wants to take soundings from key shareholders and defence experts before deciding whether to top GEC's offer of pounds 21.50 per VSEL share.

Dick Evans, chief executive, said in Paris that he was undecided whether to stay in the fight. He added: "When we have had a chance to look at the details of the offer we will make an appropriate response."

Although his comments were ambivalent, they made clear that BAe has not yet given up. Many in the City predicted it would withdraw after GEC's unexpectedly high bid.

Mr Evans said the company hoped to extend its capabilities as a prime contractor to sea as well as air and land defence systems by buying the naval yard. But he described the acquisition as not crucial to British Aerospace's future.

General Electric showed no interest in VSEL until British Aerospace announced it had agreed to buy the company last year, Mr Evans said. "Acquiring VSEL is not a necessity for us . . . for us VSEL is a growth opportunity. For GEC it is a must which is clearly reflected in what GEC is prepared to pay."

Referring to the sharp rise in VSEL's share price since the bid battle started, he added: "If I was a GEC shareholder I would be asking why we should be prepared to pay pounds 21.50 a share for something that we could have had for pounds 3 a share three years ago."

BAe does not want the VSEL battle to overshadow this week's show, one of the most important for several years, where it hopes to secure large military and commercial business.

UK defence analysts attending the show said BAe executives were trying to calm nerves after GEC's larger-than-expected all-cash offer. They said BAe had expected GEC to play a cat-and-mouse game for VSEL, and were knocked back by Lord Weinstock's attempted killer blow.

According to the terms of BAe's recent "rights" issue to fund the VSEL purchase, shareholders can veto any offer, a clause designed to stop the company from over-paying.

One analyst who had met BAe yesterday believed that the company would meet the remainder of its most important institutional shareholders after the air show and would make an announcement at the end of next week. However, he said: "Sentiment is against BAe getting into a macho war with GEC. Maybe BAe just wants Lord Weinstock to sweat a bit before the company bows out gracefully."

BAe was heartened last week with only a moderate fall in its share price on the day GEC announced its offer. The further BAe's share price falls, the harder it is for the company to raise the value of its all-paper offer.

BAe executives met the French President, Jacques Chirac, on Saturday and it is thought they discussed the merger of France's Matra with BAe's missiles business. The merger has been dogged by French political in-fighting and a decision is not now expected until September.

Also Roger Freeman, the UK defence procurement minister, is due to meet BAe today to discuss the current pounds 2bn bid for the Army's new attack helicopter.

Meanwhile, BAe was today due to formally unveil details of a joint marketing and manufacturing plan for Saab's Gripen fighter aircraft.

The deal would be extremely important for BAe as it would fill the gap between its sophisticated Eurofighter and low-cost Hawk aircraft.

BAe would have 45 per cent of the joint venture and Saab the rest, and some production work would be switched to BAe's Cheshire plant. "It will be real work in real British Aerospace factories in the UK," a senior BAe director said. "Saab gets the benefit of our marketing expertise, and we get a new product that fits well with our current range." Even an executive from a rival firm said yesterday that the logic of the deal could not be faulted.

The deal is likely to be controversial, however, because Saab will be accused of a cynical attempt to get around Sweden's strict export restrictions on arms sales to politically incorrect regimes.

Teal Group, the US defence consultants, yesterday estimated that there could be export potential for 2,700 of the fighter-aircraft, worth $88bn, over the next 10 years.

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