VT may get clear run at Mouchel – but its target refuses to talk

Support-services big guns Serco and Capita leave field to rival and a 'wholly inadequate' £380m bid
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The Independent Online

VT Group's attempt to buy rival UK support-services firm Mouchel is unlikely to be challenged by two of the sector's big guns, Serco and Capita.

Despite the two companies being tipped as counter-bidders for Mouchel, there were indications this weekend that VT could get a clear run.

Mouchel, a road and infrastructure contractor, has refused to meet VT, calling its proposed £380m takeover approach "wholly inadequate". But investors' hopes that a bid battle would raise Mouchel's value waned as bankers and analysts dismissed suggestions that the firm would be the centre of a price war.

"I know these are early days, but I can't see anyone else on the horizon yet. That said, the price that VT is offering is still too low," said one fund manager.

Serco does not regard Mouchel as having the "skills set" it wants. Besides, said a source, Serco is looking at other markets, such as the United States and India.

Meanwhile, a financial adviser to Capita said that he had "never heard the company show any interest in approaching Mouchel". He believes that VT's chief executive, Paul Lester, may have "sounded out" Capita and Serco before approaching Mouchel because the larger rivals have "greater financial firepower." It was revealed last week that VT had twice approached Mouchel, with the second offer worth about 260p a share, valuing Mouchel at £276m. VT would also take on £104m in debt.

Mouchel said that the offer undervalued the company, a view supported by two of its largest shareholders, M&G Investment Management and Schroders.

Andy Brough, a fund manager at Schroders, Mouchel's second-largest investor with 10 per cent, said that a starting price of 300p a share would be more appropriate.

However, it is thought that VT is not prepared to go much beyond its last offer of 260p a share. The company, which has about £350m to spend on acquisitions after selling its shipbuilding interests to BAE Systems, has a shortlist of other bid targets.

Nevertheless, VT, which tomorrow moves its stock-market listing from the defence sector to support services, sees Mouchel as its first choice. Mr Lester said that a tie-up with Mouchel was a "strategically compelling proposition". However, VT is frustrated that Mouchel will not enter preliminary discussions, and may therefore be prepared to raise its offer slightly in order to kick-start talks.

VT is currently offering Mouchel shareholders either equity or a mixture of cash and shares. A VT spokesman said: "We will not overpay for Mouchel."

Mouchel's share price, after surging 43 per cent on news of VT's interest, closed on Friday down 1.1 per cent at 255p. Mouchel, Serco and Capita refused to comment.