Two US defence giants ponder Alvis bid

ALVIS IS set to be the subject of intense takeover speculation this week as predators decide whether to launch a bid for the armoured vehicles group.

United Defense Industries and General Dynamics, two US defence manufacturers, are reported to be preparing bids for Alvis. Meanwhile Vickers, the UK engineering firm, also hopes to join the action.

The interest follows last week's merger between Alvis and the Warrior armoured cars division of GKN, the engineering group. The deal heralds the beginning of the long-expected consolidation of the global armoured vehicle industry.

Bidders are interested in Alvis because, following the merger, it will have a strong position in the armoured vehicle market. By taking on GKN's Warrior and Piranha carriers it gains access to a pounds 3bn programme to build battlefield taxis. Vickers was part of a rival consortium which missed out on the contract.

The awarding of the contract is a defining moment in the European armoured vehicle sector, with companies that failed to get any work on the contract forced to merge with other players or exit the industry.

Any takeover would have to gain the approval of GKN, which has taken a 29.9 per cent stake in Alvis as a result of the merger. The stake gives it the power to block any takeover it does not support.

However, the merger will not formally be completed until it is approved by Alvis shareholders in a few weeks' time. This gives other bidders an opportunity to put forward alternative proposals.

United Defense is a privately-owned US group which was created by the merger of two smaller companies four years ago. The group has close links with GKN, as both companies are members of a GEC-led consortium bidding for Project Tracer, the Anglo-American scheme to develop a new hi-tech reconnaissance vehicle.

General Dynamics is a huge group best known for its jet fighter aircraft. It also manufactures the Abrams tank.

News of the American interest is likely to increase the pressure on Vickers. Paul Buysse, the new chief executive of Vickers, has identified defence as one of the group's core activities. However, even though Vickers has a strong position in tanks through its Challenger II vehicle, it lacks the critical mass to compete for projects in its own right.

A shortage of orders was behind Vickers' decision last week to close its Leeds factory with the loss of 1,100 jobs. However, it has a pounds 200m cash pile it could use to make acquisitions.

Alvis makes the Scorpion and Stormer armoured vehicles. The company almost doubled in size last year with the pounds 84m takeover of Hagglunds, the Swedish armoured vehicle manufacturer.