Statement re Possible Offer

RNS Number : 3690H

Babcock International Group PLC

18 February 2010

 

                                                                Babcock International Group PLC

18 February 2010

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

This is an announcement falling under Rule 2.4 of the City Code on Takeovers and Mergers (the "Code") and does not constitute an announcement of a firm intention to make an offer or to pursue any other transaction under Rule 2.5 of the Code. Accordingly, VT Group plc shareholders are advised that there can be no certainty that a formal offer for VT Group plc will be forthcoming, even in the event that the pre-conditions in this announcement are satisfied or waived.

Babcock International Group PLC - Possible Offer for VT Group plc

Revised indicative offer proposal

Following today's announcement by VT Group plc ("VT"), Babcock International Group PLC ("Babcock") can confirm that on 16 February, having consulted with certain major shareholders, it made a revised proposal to the Board of VT. The revised proposal represents a significant improvement to the terms set out in Babcock's previous proposal to VT.

The revised proposal sets out a value range of between 680 and 715 pence per VT share¹, depending on the value of merger benefits identified during the required due diligence process. This range represents:

·      a premium of between 33.9% and 40.7% to VT's mid-market closing price of 508 pence per share on 12 February 2010 (being the last full trading day prior to the announcement by Babcock of a possible offer for VT)

·      an exit multiple of 20.4 - 21.4 times VT's historic earnings

·      excluding the BVT Exit Proceeds, a premium of 45.1 - 54.2% to the value of the current ongoing operations of VT²

The consideration would comprise a mixture of cash and Babcock shares, with an exchange ratio of 0.701 Babcock shares for each VT share and the balance in cash.

Compelling strategic logic

Babcock believes that the combination has a clear and compelling strategic logic for shareholders and customers of both companies. We believe that the combined group would be in a better position to exploit business opportunities and provide cost-efficient solutions not so readily available to either company on a standalone basis. As a result, the combination expands the size of our addressable markets and should create a business better placed to deliver against the larger more complex contracts that the market is increasingly migrating towards.

The combined group would have a broad and deep capability in relation to the UK Air, Land and Sea defence markets across three main support areas: infrastructure, equipment support and training.  We believe that the strength of the combined operation would allow it to take on a broader range of larger, more complex support services contracts than either business would be likely to win alone. The claim made that in some way the combined group would be conflicted from participating in the potential outsourcing of MoD's commodity purchasing activities - as recommended in the Gray Report - is wholly without justification: Babcock already enjoys some £50 million per annum of revenue from this type of contract and would expect the combined group to be in a position to increase this significantly.

VT's shareholders would also benefit from Babcock's broader presence in the defence and civil nuclear sectors, where Babcock already delivers a compelling customer proposition across tiers one, two and three.

The combination brings together two companies with similar operating models, customers and core competencies. Babcock has a long and successful track record of integrating acquisitions  and delivering synergies for the benefit of shareholders and cost savings for the benefit of customers. As previously stated, Babcock believes that there are significant merger benefits (excluding any growth synergies) of £27 million per annum pre-tax as well as additional tax savings of approximately £6 million per annum. We further believe, considering the complementary nature of our operations, that with appropriate access Babcock might identify other benefits, as yet unquantified, which could be available to shareholders. 

Through its pursuit of Mouchel Group plc, VT now proposes a diversification into new market areas which typically have a large number of smaller contracts at lower margins. We believe such diversification would be challenging to manage and expose VT's shareholders to cutbacks in local government and capital programme spending following the next General Election.  By contrast, the majority of the revenues from a combination of Babcock and VT would be derived from long-term engineering support contracts on existing assets.

Babcock has a strong balance sheet.  We believe the combined business would be highly cash generative and would have the ability to repay debt quickly.

Next steps

In view of the strategic logic, we believe that the proposed combination represents a compelling growth story and provides an opportunity which should be explored in full by both companies.

Babcock is committed to working towards a recommended transaction and establishing a constructive dialogue with VT. Babcock believes there to be significant commercial logic underpinning the combination of the two companies, and that it remains in the interests of VT shareholders for the Board of VT to engage with Babcock.  Babcock is disappointed that the Board of VT has to date been unwilling to do so.

The making of any offer by Babcock remains subject to the following pre-conditions:

·      Babcock being granted access to conduct satisfactory due diligence;

·      the unanimous and unqualified recommendation by the Board of VT in respect of any offer by Babcock;

·      each member of the Board of Directors of VT giving irrevocable undertakings to accept any offer in respect of all of their VT shares; and

·      the agreement of VT to a standard break fee becoming payable to Babcock.

Babcock reserves the right to waive any or all of the pre-conditions described in this announcement.

As set out in Babcock's announcement of 15 February, Babcock reserves the right to make an offer on less favourable terms than those set out in this announcement in the event that:

·      an agreement and recommendation in respect of such terms is reached with the Board of VT;

·      a third party announces a firm intention to make an offer for VT or VT announces a firm intention to make an offer for Mouchel Group plc;

·      VT announces, declares or pays a total dividend for the financial year ending 31 March 2010 of 17.3 pence per VT ordinary share or less, in which case there would be an equivalent reduction in Babcock's offer price; 

·      VT announces, declares, pays or makes any dividend or distribution to VT shareholders at any time (including in accordance with its normal dividend schedule) which is more than, when aggregated with any payment or distribution under (iii), 17.3 pence per VT ordinary share, in which case such reduction may exceed the amount of the relevant dividend(s) or distribution(s); or

·      the actual diluted number of VT ordinary shares is greater than the 184.4 million that has been assumed, such that the pro rata entitlement per VT ordinary share to the BVT Exit Proceeds is lower than 126.3 pence, which would lead to an equivalent reduction in Babcock's total offer price.

In addition, Babcock reserves the right to introduce other forms of consideration and/or vary the proposed mix of consideration in any offer.

Defined terms used in this announcement shall have the same meaning as in Babcock's announcement of 15 February 2010.

Notes:

1.     For the avoidance of doubt, the floor price for the purposes of Rule 2.4(c) of the Takeover Code will be considered to be the higher of (i) the value of the terms set out in Babcock's announcement of 15 February 2010 and (ii) 680 pence at the date of any announcement made by Babcock under Rule 2.5 of the Takeover Code.  Nothing in this announcement is intended to constitute a "No Increase Statement" under Rule 32.2 of the Takeover Code.

2.     The value of the current ongoing operations of VT is as set out in Babcock's announcement of 15 February 2010.

Enquiries:

Babcock

Peter Rogers (Chief Executive)

Bill Tame (Group Finance Director)

[phone]

Financial Dynamics

Andrew Lorenz

Richard Mountain

Sophie Kernon

[phone]

J.P. Morgan Cazenove

Andrew Truscott

Malcolm Moir

[phone]

Evercore Partners

Bernard Taylor

Julian Oakley

[phone]

J.P. Morgan Cazenove Limited and Evercore Partners Limited are authorised and regulated in the United Kingdom by the Financial Services Authority, are acting for Babcock and for no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than Babcock for providing the protections afforded to clients of J.P. Morgan Cazenove Limited and Evercore Partners Limited or for providing advice in relation to the matters set out in this announcement.

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities. This announcement has been prepared in accordance with English law and the Takeover Code and information disclosed may not be the same as that which would have been prepared in accordance with the laws of jurisdictions outside of the United Kingdom.

The distribution of this announcement in jurisdictions other than the United Kingdom and the availability of any offer to VT shareholders who are not resident in the United Kingdom may be affected by the laws of relevant jurisdictions.  Therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom or VT shareholders who are not resident in the United Kingdom will need to inform themselves about, and observe, any applicable requirements.

Babcock shares have not been and are not currently intended to be registered under the securities laws or regulations of the United States, Australia, Canada or Japan, and may not be offered or sold in the United States, Australia, Canada or Japan or any other jurisdiction where it would be unlawful to do so absent registration or an applicable exemption from the securities laws or regulations of such jurisdictions.

 Unless otherwise determined by Babcock or required by the Takeover Code and permitted by applicable law and regulation, copies of this announcement are not being, and must not be, directly or indirectly, mailed, transmitted or otherwise forwarded, distributed or sent in, into or from the United States, Australia, Canada or Japan or any other jurisdiction where it would be unlawful to do so and persons receiving this announcement must not mail or otherwise forward, distribute or send it in, into or from such jurisdictions.  Any person who would, or otherwise intends to, or who may have a contractual or legal obligation to, forward this announcement and/or any other related document to any jurisdiction outside the United Kingdom should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdiction.

Additional Disclosure Related to the United States

Subject to future developments, Babcock reserves the right to file a registration statement and/or other documents with the U.S. Securities and Exchange Commission (the "SEC") in connection with the proposal described in this announcement. VT shareholders should read those filings, if any, and any other filings made by Babcock with the SEC in connection with such proposal, if any, because they will contain important information. Those documents, if and when filed, may be obtained without charge at the SEC's website at www.sec.gov and at Babcock's website at www.babcock.co.uk.

Dealing Disclosure Requirements

Under the provisions of Rule 8.3 of the Code, if any person is, or becomes, 'interested' (directly or indirectly) in 1 per cent. or more of any class of 'relevant securities' of Babcock or of VT, all 'dealings' in any 'relevant securities' of Babcock or of VT (including by means of an option in respect of, or a derivative referenced to, any such 'relevant securities') must be publicly disclosed by not later than 3.30 p.m. (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which any offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the 'offer period' otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an 'interest' in 'relevant securities' of Babcock or VT, they will be deemed to be a single person for the purpose of Rule 8.3.

 Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevant securities' of Babcock or of VT by Babcock or VT or by any of their respective 'associates', must be disclosed by no later than 12.00 noon (London time) on the London business day following the date of the relevant transaction.

A disclosure table, giving details of companies in whose 'relevant securities' 'dealings' should be disclosed, and the number of such securities in issue, can be found on the Panel's website at www.thetakeoverpanel.org.uk.

'Interests in securities' arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an 'interest' by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities.

 Terms in quotation marks are defined in the Code, which can also be found on the Panel's website. If you are in any doubt as to whether or not you are required to disclose a 'dealing' under Rule 8, you should consult the Panel.

Forward looking statements

Certain statements in this document are forward looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this document regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement. Except as required by law, Babcock is under no obligation to update or keep current the forward-looking statements contained in this document or to correct any inaccuracies which may become apparent in such forward-looking statements.

 No profit forecast

No statement in this announcement is intended as a profit forecast or profit estimate and no statement in this announcement should be interpreted to mean that the future earnings per share of the enlarged group, Babcock and/or VT for current or future financial years will necessarily match or exceed the historical or published earnings per share of Babcock or VT.

Publication on Babcock website

A copy of this announcement will be available on Babcock's website at (www.babcock.co.uk) by no later than 12 noon (London time) on 19 February 2010

 

END

 

 

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