Vickers' management, led by Sir Colin Chandler, chairman, first heard rumours of Mayflower's intentions on Monday and asked the High Wycombe- based company to issue a denial. In a Stock Exchange statement last night Vickers said Mayflower was planning a "hostile" bid for the company.
It continued: "Mayflower has not given Vickers appropriate assurances that this information is without foundation. As a result, Vickers is announcing the existence of these plans both in the interests of its shareholders and in order to avoid the development of a false market in its shares."
A short while later Mayflower, which has designed a new body panel making plant for Rolls-Royce, confirmed that it was examining a possible approach. The company said: "Mayflower already has a close relationships with Rolls- Royce. In the light of the above, the board of Mayflower is considering all its options, which may, or may not, include an offer for Vickers."
Shares in Vickers jumped 20.5p on the news, to 248p, adding pounds 70m to its stock market value, which rose to pounds 840m. At the same time Mayflower's share price dropped 15p to 189.5p, valuing the company at pounds 478m.
Vickers was last night preparing a possible bid defence, hinting that Mayflower was unlikely to be able to finance a takeover. The company said it was "not clear" whether Mayflower, which has gearing of some 60 per cent, would be in a position to make an offer. The statement went on: "But should it do so, it would be considered on its merits."
A Mayflower spokesman refused to comment further, though it was thought the company, founded and led by John Simpson, chief executive, would decide by the end of this week whether to launch a full-scale bid. The group, which is being advised by BZW, is apparently eyeing an offer including some Mayflower shares, though the bulk would be in cash.
If it makes an offer, Mayflower would cancel the sale of Rolls-Royce, announced less than a fortnight ago, and instead sell-off Vickers' defence business, the UK's largest armoured vehicle maker, which produces the Challenger tank. Mayflower has recently invested pounds 28m in its car panel business, which makes entire bodies for Rover, for its MGF sports car and for the Aston Martin DB7. It also supplies Land Rover Discovery body panels.
It would be a U-turn for Vickers, which has been in talks to buy GKN's armoured vehicle business for a price thought to be between pounds 50m and pounds 100m. Vickers has argued that it cannot afford to invest in a new, smaller Rolls- Royce, having already paid pounds 200m for the replacement for its existing car, due early next year.
Should the bid go ahead and succeed, one potential buyer of the Vickers tank business would be Alvis, the UK armoured vehicle manufacturer best known for the Scorpion and Stormer armoured tracked vehicles. Nicholas Prest, the Alvis chairman, said last night, however, that it had not been involved in any way with Mayflower or consulted on any break-up plans Mayflower had for Vickers should a bid materialise.
Nevertheless, it is thought that Alvis would be bound to register an interest if the tanks division did come on the market. Defence industry observers were sceptical, though, about whether the bid would succeed, pointing to the premium Mayflower would have to pay.
Alvis paid pounds 80m in September for the Swedish armoured vehicle group Hagglunds in a deal which catapults it on to a par with both Vickers and GKN, maker of the Warrior armoured track vehicle, in terms of military production.
Apart from Rolls-Royce, Mayflower would also retain Vickers' growing marine engines business, which makes propulsion systems for the new generation of fast ferries.
Mayflower has grown rapidly since 1989 out of the "shell" of the former Triangle toy company. Through share issues and acquisitions, its sales have soared from pounds 27m in 1991 to pounds 202m in 1995.
The possible bid for Vickers follows a setback for Mr Simpson last year. His pounds 172m bid to buy a US car suspension maker was trumped by a much larger American rival. Mayflower recently revealed a 58 per cent rise in half- yearly profits, to pounds 16m.