While VT Group was revving up its campaign to take over Mouchel yesterday, rival Babcock International was circling VT itself.
VT Group raised its offer for Mouchel from its initial December offer by 18 per cent yesterday morning, putting a price tag of roughly £320m on the support services company.
But by mid-afternoon, VT had received an approach itself. Babcock's offer of 245p in cash and 0.701 Babcock shares for every new VT share was rejected out of hand.
Babcock said the offer came in at a total of 633.9p, equivalent to 19 times VT's historic earnings and a 25 per cent premium to VT's Friday closing price. The company also said the combination has "significant industrial and commercial logic", creating a large company with "increased scale, skills and capabilities in its core markets of defence, nuclear and critical infrastructure".
But VT Group swiftly rejected the approach as "strategically unsound" and "at a level which substantially undervalues the company". Babcock's increased exposure to the Ministry of Defence, and therefore the likelihood of expected budget cuts, was singled out for criticism. "The board was unanimous in rejecting this approach," VT Group said.
Meanwhile, Mouchel's board was left considering its improved approach from VT, offering 0.579 new VT Group shares per Mouchel share. "This is our final offer," Paul Lester, the VT Group chief executive, said.
The back-and-forth set all three companies' share prices gyrating. VT Group stock, which fell in the morning with the boosted offer for Mouchel, closed up 15 per cent at 584p after the rejected Babcock offer. Mouchel, which had soared by 14 per cent, ended up down 11.9 per cent at 220p. Babcock closed down 8.8 per cent at 505p.
Notwithstanding VT's rejection of Babcock, commentators back the deal. "As this involves the two largest and most successful UK-based engineering support based businesses the logic for this merger is in our opinion very hard to argue against," Howard Wheeldon at BGC Partners said.
VT Group, formerly Vosper Thornycroft, sold its shipbuilding arm to BAE Systems for £380m last year.Reuse content