BAE finds clear blue water in bid to win Devonport yard

BAE Systems is poised to win control of the Devonport dockyard, home to Britain's nuclear submarine fleet, after Babcock International appeared to draw back from making an offer.

KBR, the US defence firm that controls Devonport, admitted publicly for the first time on Friday that it had received enquiries about its 51 per cent stake in Devonport Management (DML).

BAE has been drawing up a bid that could value Devonport at up to £200m, and has been talking with Carlyle, the private equity firm that might provide some financing for the deal.

Balfour Beatty and Weir Group, which own the rest of DML, are "willing sellers" according to an executive close to the talks. The firms could net up to £50m each for their holdings.

Babcock is thought to have balked at the prospect of entering a bidding war against BAE, the UK's biggest defence contractor. It is also thought that the Ministry of Defence (MoD) favours consolidating submarine manufacture, currently done by BAE at Barrow-in-Furness, with the refitting and refuelling carried out at Devonport.

KBR has been cornered into considering bids for DML after falling out with the MoD in November. The ministry had been concerned that KBR's spin-off from American services giant Halliburton might undermine its finances, and asked KBR to halt the US flotation while it sought guarantees. KBR went ahead and floated anyway - a decision that an MoD official described as "just not cricket".

In a conference call with Wall Street analysts on Friday, KBR's chief executive, Bill Utt, insisted no final decision had been made.

"We have received inquiries related to purchasing KBR's interest in DML. We plan to evaluate these inquiries," he said. "In the meantime, we have given the [MoD] the financial information they have requested with respect to KBR as a standalone entity. "

DML's potential sale comes at a time of upheaval in the UK's naval yards, with defence procurement minister Lord Drayson demanding consolidation. BAE is negotiating to merge its shipbuilding interests with those of VT Group, and the future shape of the industry is not expected to become clear before the summer.

Babcock, which owns the shipbuilding and refitting yard at Rosyth and runs the Faslane submarine base on the Clyde, says it wants to play a part in the consolidation and has argued that placing too much responsibility in the hands of BAE could be damaging to British interests.