BAe can only retreat now

The hunt for VSEL looked all but over last night, as Captain Weinstock's torpedo homed in on Britain's only nuclear submarine builder. British Aerospace could just afford to retaliate with another mixture of cash and paper, but it would probably cost at least pounds 24 a share for a renewed bid to have any impact against the all-cash offer from GEC.

British Aerospace's only sensible course is to retreat now and leave VSEL shareholders to toast the management's prowess in selling for pounds 21.50 a share a company that was worth less than pounds 3 just before the last election. Shareholders, which in this case include on a substantial scale the company's own directors, might also do worse than raise their glasses to Michael (Clearall) Heseltine, whose decision to overrule the Monopolies and Mergers Commission and allow a competing GEC bid usefully raised the stakes.

It is hard for Dick Evans of British Aerospace to find much of a silver lining in all this. He has at least forced Lord Weinstock to do the one thing which he hates, pay top whack in a bid, but that is little compensation for the mighty powerful position GEC will be in as owner of two thirds of Britain's warship industry. While BAe is left with its strongest balance sheet for five years and a rapidly improving reputation in the City, its ambitions have been fustrated. For the time being, this is a company that must confine itself to aerospace.

The position is, however, considerably better than a year ago. BAe's lossmaking regional aircraft business is now part of a Franco-Italian grouping, ATR, while a new joint fighter venture is expected any day now. Other projects are in the pipeline.

Mr Evans is comfortable with international co-operation. It may also be the basis of a useful defence against any future assault from GEC, which has not dropped its ambition to merge the Marconi defence electronics business with BAe. The more elaborate the international links, the harder they could be to unscramble. Even without poison pill alliances, a newly refettled BAe has become a far harder target for Lord Weinstock.