Contingent liability threatens VSEL bid

PROSPECTS for a takeover by British Aerospace of the Trident submarine builder, VSEL, may be threatened by a pounds 40m contingent liability relating to VSEL's privatisation in 1986. The liability is the maximum additional amount payable to British Shipbuilders, the state-owned company from which VSEL emerged, and depends on the performance of the company for the six years to 31 March 1992.

VSEL's annual report for last year shows that the pounds 40m was written back to reserves in 1990/1, as the board believes that no payment is necessary. However, an industry source said that British Shipbuilders considers the issue to be outstanding and that this could be one reason why VSEL is asking a much higher price than British Aerospace is willing to pay.

British Shipbuilders still exists as a semi-dormant company, owned by the Government, with certain assets and liabilities. It is thought that it is keen to extract a payment from VSEL, which would then go to the Treasury.

Talks between VSEL and BAe came to a standstill on Friday night because the Barrow-based submarine builder is demanding a price of at least pounds 13 per share from its suitor, valuing the company at well over pounds 500m. BAe regards VSEL's demand as over- ambitious and has set its ceiling for the all-share offer at about pounds 12.50. BAe is also unwilling to provide a cash alternative, which could make the offer more attractive to VSEL shareholders.

VSEL's shares rose by nearly pounds 3 to pounds 12.10 last week but fell back yesterday to pounds 11.78. Shares in British Aerospace closed at 442p, a fall of 10.5p on the day.

VSEL is thought to want a partner to help it bid for a vital pounds 2.5bn submarine contract from the Royal Navy, which is expected to be awarded within the next two years.

British Aerospace has experience in bidding for large defence contracts and in acting as prime contractor. It also has an established international sales and marketing network, which could help VSEL win export orders in future. The aerospace group is known to have ambitions to expand its naval side and may look elsewhere if it fails to win VSEL.