GEC to raise stakes in submarine battle

GEC is expected to join the battle for VSEL, the nuclear submarine manufacturer, in the next 10 days with a cash bid valuing the company at around pounds 700m.

The GEC offer is likely to be in the region of pounds 18 for each VSEL share. British Aerospace last week renewed its 3.3-for-one share offer which, following the recent rise in BAe shares, is now worth about pounds 17.30.

"There is no reason GEC should not move sooner rather than later in response to BAe," said Sandy Morris, engineering analyst at NatWest Markets. "But if GEC does not come up with at least pounds 17 or better, it will be in danger of being laughed out of court."

Following the 18p rise in VSEL shares on Friday, however, GEC may decide to go considerably higher than pounds 17 per share. There is some uncertainty in the City over GEC's tactics. Many observers do not understand why it is taking the company so long to announce a bid.

"I am not sure that GEC understands the strategic importance of VSEL," commented one analyst. Many believe that if GEC failed to capture VSEL, which is headed by Lord Chalfont, it would be unable to buy BAe at some later date.

Although BAe has the initiative in the current round of bidding, GEC is unlikely to drop out of the fight before it has forced up the price of VSEL. "If BAe gets VSEL for under pounds 20, it would be a major success," said Mr Morris. However, both sides can afford to pay slightly over pounds 20, a belief that was reflected in the sharp rise in the company's share price last week.