Statement re Possible Offer

RNS Number : 1653H

Babcock International Group PLC

15 February 2010

 



                                                                Babcock International Group PLC

15 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

Babcock International Group PLC ("Babcock") announces that it has recently made an approach to the Board of VT Group plc ("VT") with an indicative proposal to acquire the entire issued and to be issued share capital of VT. The Board of VT has rejected this proposal and has declined to enter into discussions with Babcock.

Babcock considers that a combination with VT has significant industrial and commercial logic and would bring together two highly complementary businesses to create a large and focused international engineering support services company.  The enlarged group would have increased scale, skills and capabilities in its core markets of Defence, Nuclear and Critical Infrastructure - all of which offer significant growth potential.  Through its enhanced range of engineering skills and knowledge, the enlarged group would be better placed to lead in complex bids, achieve greater work-share and deliver increased services and efficiencies for its customers.  The majority of the group's operations would be in the UK but with opportunities to expand its existing operations in Australia, Canada, the Middle East, South Africa and the USA. Babcock believes that the combination of Babcock and VT presents a unique opportunity to create significant value for shareholders in both companies.

The terms of Babcock's indicative proposal are as follows:

- For each VT share:

·      245.5 pence in cash comprised of:

o   126.3 pence  per share in respect of the net cash proceeds of the exit from the BVT Joint Venture with BAE Systems (the "BVT Exit Proceeds")¹; plus

o   an additional 119.2 pence per share in cash; and

·     0.701 new Babcock shares.

·      This amounts to an aggregate value of 633.9 pence per VT share² representing:

o   a premium of 24.8% to the current share price³; and

o   an exit multiple of  approximately 19.0 times VT's historic earnings⁴.

·      Excluding the BVT Exit Proceeds the indicative proposal  represents a value of 507.6 pence per VT share, a premium of 33.0% to the current value of the continuing operations of VT⁵;

·      The indicative proposal would result in VT shareholders owning approximately 36% of the enlarged entity⁶.

On 3 February 2010 Babcock sent a letter to the Board of VT setting out the clear rationale, benefits and basis of the proposed acquisition.  This approach followed two formal approaches made by Babcock to VT during 2009.  It is disappointing that VT's Board has declined to discuss this further with Babcock or to engage with a view to exploring terms which might be acceptable to them.  Babcock believes it is in the interests of both companies' shareholders for Babcock and VT to work together towards an agreed transaction for the mutual benefit of all stakeholders.

Babcock has identified significant merger benefits (excluding any growth synergies), quantified at approximately £27 million per annum pre-tax. Substantially all of the benefits are anticipated to be achieved by the end of the first full year following completion of the proposed acquisition. In addition, a further benefit of approximately £6 million per annum is estimated to come from a reduction in the effective corporation tax rate of the combined group post acquisition. Gross one-off realisation costs of approximately £30 million in total are expected to be incurred by the end of the second full year following completion. These merger benefits have been reviewed and reported on by Babcock's accountants, PricewaterhouseCoopers LLP, and Babcock's financial advisers, J.P. Morgan Cazenove Limited and Evercore Partners Limited, in accordance with the Code. Copies of their reports are included at Appendix 2 to this announcement.

Babcock continues to believe the proposed combination of Babcock and VT would:

·      offer the prospect of value creation superior to the pursuit of VT's current strategy;

·      allow material ongoing participation for VT shareholders in the enlarged entity; and

·      allow VT shareholders to retain 100 per cent. of the value derived from the BVT Exit Proceeds.

The making of any offer is subject to the following pre-conditions:

(i)            Babcock being granted access to conduct satisfactory due diligence;

(ii)           the unanimous and unqualified recommendation by the Board of VT in respect of any offer by Babcock;

(iii)          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

(iv)          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.

Further, Babcock reserves the right to make an offer on less favourable terms than those set out in this announcement in the event that:

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

(ii)           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;

(iii)          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;  

(iv)          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

(v)           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.

Notes

¹ VT announced on 24 September 2009 BVT Exit Proceeds of £232.8 million. The 126.3 pence per share value attributed to the BVT Exit Proceeds is based on an assumed diluted number of VT ordinary shares of 184.4 million. The actual per share value of the BVT Exit Proceeds, and therefore the related cash amount received in respect of each VT share under Babcock's offer proposal, may be higher or lower than 126.3 pence depending on the actual number of VT ordinary shares in issue at the time of the distribution or payment of the BVT Exit Proceeds.

² Based on Babcock's mid-market closing price on 12 February 2010 of 554 pence per share, as provided by the London Stock Exchange and a diluted number of VT ordinary shares of 184.4 million.

³ Based on VT's mid-market closing price on 12 February 2010 of 508 pence per share, as provided by the London Stock Exchange.

⁴ Based on VT's reported adjusted 2009 EPS of 33.4 pence as per VT's Interim results 2009.

⁵ Based on VT's mid-market closing price on 12 February 2010 of 508 pence less the BVT Exit Proceeds of 126.3 pence per share (as per Note 1)

⁶ Based on:

·      a diluted number of VT ordinary shares of 184.4 million;

·      the issued share capital of Babcock, being 229,641,704 ordinary shares (as per the Rule 2.10 Disclosure below); and

·      the exchange ratio of 0.701 Babcock shares for every VT share.

There are several material assumptions underlying the calculation of merger benefits which might therefore be materially greater or less than those estimated. For further details, see Appendix 1 and the letters from PricewaterhouseCoopers LLP and Babcock's financial advisers.

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]

Rule 2.10 Disclosure

In accordance with Rule 2.10 of the Code, Babcock confirms that it has 229,641,704 ordinary shares of 60p each in issue. The International Securities Identification Number for the ordinary shares is GB0009697037.

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 16 February 2010

Appendix 1

(a) Unless otherwise stated, financial and other information concerning VT and Babcock have been extracted or derived from the interim statements, preliminary results and the annual report and accounts of each company for the relevant periods or from published sources or from Babcock management sources.

(b) In arriving at the estimate of merger benefits, the Board of Babcock has assumed that:

·      Babcock will acquire 100% of the issued shares in VT following completion, without undue delay;

·      there will be no significant impact on the combined group arising from any decisions made by competition authorities;

·      there will be no material change to the market dynamics in the combined core markets following completion;

·      there will be no significant impact on the combined group arising from change of control clauses as a result of the proposed transaction: and

·      there will be no material change in tax legislation, other than that already announced, which will effect the businesses.

(c) In arriving at the estimate of merger benefits, the Board of Babcock has assumed that there are comparable operations, processes and procedures within VT, except where publicly available information clearly indicates otherwise. Babcock's management, through a detailed understanding of Babcock's cost structure, has determined the source and scale of realisable merger benefits. The merger benefits represent those savings which are incremental to Babcock and, to the best of the Board of Babcock's knowledge, are not currently included in VT's existing plans. In addition to Babcock management's information, the sources of information that Babcock has used to arrive at the estimate of merger benefits include:

·      VT's interim and annual reports and accounts;

·      VT's presentations to analysts;

·      VT's website;

·      documents and statements issued by VT;

·      analysts' research;

·      other publicly available information; and

·      Babcock's knowledge of the industry and of VT.

(d) The proposed combination of Babcock and VT is expected to give rise to significant opportunities for merger benefits, arising from:

·      the elimination of duplicate head offices including establishment costs and the rationalisation of central functions;

·      the integration and rationalisation of businesses operating in similar areas;

·      more effective procurement spend over the enlarged group's operations; and

·      taxation benefits.

Babcock has identified significant merger benefits (excluding any growth synergies), quantified at approximately £27 million per annum pre-tax. Substantially all of the benefits are anticipated to be achieved by the end of the first full year following completion of the proposed acquisition. In addition, a further benefit of approximately £6 million per annum is estimated to come from a reduction in the effective corporation tax rate post acquisition. Gross one-off realisation costs of approximately £30 million in total are expected to be incurred by the end of the second full year following completion.

(e) The Board of Babcock has not had discussions with VT's management regarding the reasonableness of their assumptions supporting the estimate of merger benefits. Therefore, there remains an inherent risk in these forward-looking estimates.

(f) Due to the scale of a combined Babcock and VT organisation, there may be additional changes to the combined group's operations. In addition, there are several material assumptions underlying the estimates, including the allocation of costs within VT, and the level of costs necessary to operate effectively each combined function or activity. Because of these factors and the fact that the changes relate to the future, the resulting merger benefits may be materially greater or less than those estimated.

(g) The reported operating costs (for continuing operations, excluding acquired intangible amortisation, exceptional items and share of equity accounted investments) for Babcock and VT for the year ended 31 March 2009 were £1,755 million and £937 million, respectively.

Appendix 2

REPORTS ON ESTIMATED MERGER BENEFITS

The following are texts from letters from (a) PricewaterhouseCoopers LLP and (b) J.P. Morgan Cazenove Limited and Evercore Partners Limited relating to the Babcock statement of estimated merger benefits set out in this announcement:

(a) from PricewaterhouseCoopers LLP

The Directors 

Babcock International Group PLC

33 Wigmore Street,

London

W1U 1QX

J.P. Morgan Cazenove Limited

20 Moorgate

London

EC2R 6DA

Evercore Partners Limited

10 Hill Street

London

W1J 5NQ

15 February 2010

Dear Sirs

PROPOSED ACQUISITION OF VT GROUP PLC ("VT") BY BABCOCK INTERNATIONAL GROUP PLC ("Babcock")

We refer to the statements regarding merger benefits (the "Merger Benefits Statement") set out on pages 1 and 2 and in clauses (b) to (f) of Appendix 1 of the announcement made today by Babcock (the "Announcement") to the effect that:

"Babcock has identified significant merger benefits (excluding any growth synergies), quantified at approximately £27 million per annum pre-tax.  Substantially all of the benefits are anticipated to be achieved by the end of the first full year following completion of the proposed acquisition.  In addition, a further approximately £6 million per annum is estimated to come from a reduction in the effective corporation tax rate post acquisition.

Gross one-off realisation costs of approximately £30 million in total are expected to be incurred by the end of the second full year following completion."

The Merger Benefits Statement has been made in the context of the disclosures in Appendix 1 of the Announcement setting out the bases of the belief of the Directors of Babcock (the "Directors") supporting the Merger Benefits Statement and their analysis and explanation of the underlying constituent elements.

This report is required by Note 8(b) on Rule 19.1 of the City Code on Takeovers and Mergers (the "Code") and is given for the purpose of complying with that requirement and for no other purpose.

Responsibilities

It is the responsibility of the Directors to prepare the Merger Benefits Statement in accordance with the requirements of Note 8(b) on Rule 19.1 of the Code.

It is our responsibility and that of J.P. Morgan Cazenove Limited and Evercore Partners Limited ("Financial Advisers") to form our respective opinions, as required by Note 8(b) on Rule 19.1 of the Code, as to whether the Merger Benefits Statement has been made by the Directors with due care and consideration.

Our work in connection with the Merger Benefits Statement has been undertaken solely for the purposes of reporting under Note 8(b) on Rule 19.1 of the Code to the Directors and to the Financial Advisers. To the fullest extent permitted by law, we do not assume any responsibility, and will not accept any liability, to any other parties other than to those persons to whom this letter is expressly addressed in respect of, or arising out of or in connection with, that work or this letter.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in jurisdictions other than the United Kingdom and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Basis of opinion

We conducted our work in accordance with the Standard for Investment Reporting 1000 (Investment Reporting Standards applicable to all engagements in connection with an investment circular) issued by the Auditing Practices Board in the United Kingdom.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Merger BenefitsStatement has been made by the Directors with due care and consideration.

We have discussed the Merger Benefits Statement together with the relevant bases of belief (including the assumptions and sources of information) with the Directors and those officers and employees of Babcock and its subsidiaries who developed the underlying plans and with the Financial Advisers. We have also considered the letter dated 15 February 2010 from the Financial Advisers to the Directors on the same matter. We have had no discussions with or received any information from VT. Our work did not involve any independent examinations of any of the financial or other information underlying the Merger Benefits Statement.

Since the Merger Benefits Statement and the bases of belief (including assumptions) on which it is based relate to the future and may therefore be affected by unforeseen events, we can express no opinion as to whether the actual merger benefits achieved will correspond to those shown in the Merger Benefits Statement and any differences may be material.

Opinion

On the basis of the foregoing, we report that in our opinion the Directors have made the Merger Benefits Statement, in the form and context in which it is made, with due care and consideration.

Yours faithfully

PricewaterhouseCoopers LLP

Chartered Accountants

(b) from J.P. Morgan Cazenove Limited and Evercore Partners Limited

The Directors

Babcock International Group PLC

33 Wigmore Street,

London

W1U 1QX

15 February 2010

Dear Sirs

PROPOSED ACQUISITION OF VT GROUP PLC ("VT") BY BABCOCK INTERNATIONAL GROUP PLC ("Babcock")

We refer to the statement of estimated merger benefits, the bases of preparation thereof and the notes thereto (together the "Statement") made by Babcock set out in this document, for which the Directors of Babcock are solely responsible.

We have discussed the Statement (including the assumptions and sources of information referred to therein), with the Directors of Babcock and those officers and employees of Babcock who developed the underlying plans. The Statement is subject to uncertainty as described in this document and our work did not involve an independent examination of any of the financial or other information underlying the Statement.

We have relied upon the accuracy and completeness of all the financial and other information reviewed by us and have assumed such accuracy and completeness for the purposes of rendering this letter. We have also reviewed the work carried out by PricewaterhouseCoopers LLP and have discussed with them the conclusions stated in their letter of 15 February 2010 addressed to yourselves and ourselves on this matter.

We do not express any opinion as to the achievability of the merger benefits identified by the Directors of Babcock.

This letter is provided pursuant to our engagement letter with Babcock solely to the Directors of Babcock in connection with Note 8 (b) of Rule 19.1 of the City Code on Takeovers and Mergers and for no other purpose. We accept no responsibility to VT or its shareholders or any other person other than the Directors of Babcock in respect of the contents of, or any matter arising out of or in connection with, this letter.

On the basis of the foregoing, we consider that the Statement by Babcock, for which the Directors of Babcock are solely responsible, has been made with due care and consideration in the context in which it was made.

Yours faithfully,

Andrew Truscott

Managing Director

For and on behalf of J.P. Morgan Cazenove Limited

Julian Oakley

Senior Managing Director

For and on behalf of Evercore Partners Limited

 

END

 

 

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