Carlyle mulls £450m swoop on Devonport submarine base

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The Independent Online

A US private equity group with close links to the Bush administration is mulling a £450m bid for DML, the company that refits Britain's fleet of nuclear submarines.

A US private equity group with close links to the Bush administration is mulling a £450m bid for DML, the company that refits Britain's fleet of nuclear submarines.

Carlyle Group has held informal talks over the past few weeks with DML, which owns the Devonport Royal Dockyard in Plymouth, according to well-placed sources.

Carlyle, which refused to comment, is interested in DML as a way of levering itself into the Ministry of Defence's plans to create a single British submarine company by merging the commercial dockyards.

The new company, dubbed Subco, would control the submarine assets of DML, BAE Systems' yard in Barrow-in-Furness, Babcock International's facilities at the Faslane naval base in Scotland and Rolls-Royce, which makes the nuclear power plants for submarines. The MoD is in detailed discussions with the companies and hopes to secure an outline agreement by the summer.

The stakes are high. It is understood that some of the companies - notably Rolls-Royce - are sceptical of the Subco plans. But others, including DML, believe that the merger is the best way to secure the industry's future. The MoD is keen to see the yards merge as a way of reducing its annual £1.35bn submarine bill by 40 per cent.

One industry executive, who is involved in the negotiations, said: "If Subco isn't formed then the wheels will come off the entire nuclear programme. It may cease to exist."

To buy DML, Carlyle would have to seek agreement from the company's largest shareholder, Kellogg Brown & Root (KBR). A subsidiary of the controversial US energy and construction company Halliburton, KBR owns 51 per cent of DML, with Balfour Beatty and Weir Group controlling 24.5 per cent apiece.

Halliburton chief executive, Dave Lesar, revealed last month that he wanted to sell KBR. Industry sources said that Halliburton might consider selling specific KBR assets to maximise its value. DML's other two shareholders don't have an active involvement in the business and are thought to be prepared to sell if they are offered a high enough price.

DML employs 4,800 people and is the largest private sector employer in Devon and Cornwall. As well as Devonport Royal Dockyard - which is home to HMS Triumph - DML also owns Appledore Shipyard in North Devon, which is focused on shipbuilding.

Carlyle is buoyed by the success of its first foray into Britain's defence market. In 2003 it took a third stake in QinetiQ, the defence laboratory group. QinetiQ, which is 56 per cent owned by the Ministry of Defence, is now heading for a £1bn flotation possibly later this year.

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