GEC makes rival bid for VSEL

Mary Fagan
Saturday 29 October 1994 00:02

British Aerospace last night promised a prolonged fight against GEC's pounds 532m cash offer for VSEL, the Trident submarine builder, claiming the bid was anti-competitive and against the public interest.

BAe, which two weeks ago launched its own agreed pounds 478m offer for VSEL, said it would not allow itself to become embroiled in a price war with its rival, but believes it might be able to persuade the Government to block the deal. Dick Evans, BAe chief executive, said: 'We do not intend to make a move on price at all.'

The GEC offer of pounds 14 for each VSEL share was roundly attacked by the Labour Party as being anti-competitive.

GEC moved quickly to bolster its position by purchasing 13.7 per cent of VSEL, 5.2 million shares, through the market at the pounds 14 offer price.

The purchase, along with the one per cent of VSEL's shares owned by GEC pension funds, brings GEC near the 15 per cent ceiling it is allowed under VSEL's articles of association.

GEC's bid represents a 23 per cent premium to BAe's cash alternative of pounds 11.40 per VSEL share.

GEC said the Ministry of Defence had confirmed that it would not stand in the way of the bid, subject to certain undertakings and clearance from the competition authorities.

BAe insisted that GEC's offer was 'wholly inconsistent' with the MoD's policy in relation to defence procurement.

The bid was also attacked by Jack Cunningham, shadow secretary of state for Trade and Industry, who called for a House of Commons statement to be made on Monday. 'The GEC bid for VSEL, if successful, would create a private enterprise monopoly for warship building in England. The bid must be referred to the Monopolies and Mergers Commission,' he said.

It emerged yesterday that Sir Peter Levene, former head of procurement at the MoD, had tried to broker a joint bid for VSEL by GEC and British Aerospace last January. However, GEC backed away saying it was not interested. This made BAe think it would get a clear run if it bid by itself.

A successful takeover of VSEL would give GEC an impregnable position in surface vessels and submarines and seriously weaken BAe's attractions as a prime contractor for naval systems contracts.

GEC said that merging VSEL with GEC-Marconi Naval Systems, 'allows the UK's two principal warship suppliers to be brought together to create centres of design and manufacturing excellence for the construction of frigates, submarines and large ships for the Royal Navy and for export'.

David Newlands, GEC's finance director, said GEC- Marconi had been progressively building its capabilities in naval systems and believes that VSEL complements the Yarrow yard. Mr Newlands insisted that GEC wanted 'to do this for business reasons. It is another brick in the wall of our naval systems business.'

VSEL said it 'appreciated' GEC's higher offer but would make no recommendation to shareholders until the Government's attitude to the competition implications became clearer. VSEL has agreed to call an extraordinary meeting to change its articles of association to enable GEC to implement its offer. A similar meeting concerning the BAe offer is set for 9 November. One City analyst said that the bid by GEC is 'good and finely judged'. The offer will make little dent in the group's cash mountain. GEC is expected to generate cash of pounds 180m this year and VSEL has about pounds 290m net cash. VSEL's cash is seen as a key attraction for BAe, which at 30 September had net debt of pounds 91m.

View from City Road, page 15 (Photograph omitted)

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