BAe bids pounds 478m for control of VSEL

BRITISH AEROSPACE yesterday moved to snap up VSEL, ending weeks of speculation over the future of the submarine builder. An all- share agreed offer values VSEL at pounds 478.5m and if successful will be the biggest takeover in BAe's history.

The group, which has for years had ambitions to expand its naval activities, said the deal was based on sound industrial and financial logic. John Weston, chairman of British Aerospace Defence, said the acquisition would complete the jigsaw, enabling the group to act as prime contractor in large naval projects, a capability that it already has in air systems.

Lord Chalfont, chairman of VSEL, said the deal would allow the yard at Barrow-in-Furness, Cumbria, to secure new work, on which the employees' future depended.

VSEL, formed through a management buyout in 1986, is preparing to bid for a pounds 2.5bn contract for Trafalgar class submarines for the Ministry of Defence and an alliance with a larger partner is seen as key to its success. About 2,500 VSEL jobs are thought to depend on securing the Trafalgar work.

The Ministry of Defence, which holds a golden share in VSEL, will approve the takeover subject to acceptance by shareholders and undertakings from BAe. Among the requirements are a guarantee that nuclear submarine production will remain under British control.

Under the proposed deal BAe is offering 2.727 new BAe ordinary shares for each VSEL share, valuing the latter at pounds 12.60. BAe said the offer represented a premium of 30.2 per cent to the VSEL share price of 968p on 27 September, the day before press speculation over a merger began. There is a full cash alternative of pounds 11.40 per VSEL share, giving a premium of 18 per cent on the 27 September price.

Investors are being tempted by a forecast from BAe of a final dividend for this year of not less than 6p, compared with 5p last time.

VSEL shares rose 82p to pounds 13.10 after the bid was announced. Shares in BAe rose by 12p to 471p.

Some analysts, who had been sceptical about the logic of a merger in the run-up to the announcement, said they were now more positive and regarded the price as fair. Wyn Ellis, engineering analyst at SG Warburg, said: 'Many people had regarded this as little more than a disguised BAe rights issue, but BAe have now acquitted themselves well in explaining the industrial logic.'

Another analyst said that the price on offer was fair in the light of VSEL's limited prospects in winning new contracts if it did not find a substantial partner. The consensus was that GEC, which had looked at VSEL at one stage, would not mount a counter-bid.

BAe said that financing the acquisition through expanding its equity base would strengthen the group's position in competing for new business. VSEL has net cash of pounds 288m compared with BAe's net debt of pounds 91m. Richard Lapthorne, BAe finance director, said that the pro forma gearing of the enlarged group would be 10 per cent, compared with BAe's 39 per cent.

BAe also said that VSEL earnings would be sheltered from tax for the foreseeable future because BAe had tax credits, related in part to capital allowances and written- off advance corporation tax.

BAe declined to say whether the deal would mean redundancies, but a VSEL spokesman said: 'There is no prospect of job losses as numbers have been reduced . . . over the last few months.'

Unions at the Barrow yard, which has seen the workforce more than halved since privatisation, gave a guarded response to the takeover news despite assurances that conditions of employment, pension rights and redundancy terms would remain unchanged.

(Photograph omitted)

Leading article, page 17

View From City Road, page 33

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
peopleMathematician John Nash inspired the film Beautiful Mind
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine