BAE and VT ponder Rosyth purchase

BAE Systems and VT, the UK defence and civil contracting groups, are considering a joint bid for the Rosyth dockyard owned by Babcock, the support services and shipbuilding group, in a move that could trigger the consolidation of Britain’s warship construction capability. Industry insiders suggest that any bid would have to be well in excess of £600m.

BAE and VT said their discussions about a possible bid for Babcock sprang from talks of a broader restructuring within naval shipbuilding. A number of companies including BAE, VT and Babcock had already been working together on the project to build two new aircraft carriers for the Royal Navy – the biggest warships ever to be built in Britain.

Babcock owns Rosyth dockyard, on the Firth of Forth; BAE has yards at Scotstoun and Govan on the Clyde, as well as Barrow in Cumbria, where it builds submarines. VT’s shipbuilding is based at Portsmouth, where it has a joint venture with BAE.

BAE and VT said exploratory talks had taken place between a number of companies in the industry and the Ministry of Defence about possible combinations and the government’s belief in the need for consolidation. VT said: “Against this background, VT and BAE Systems have been exploring the possibility of a potential joint acquisition of Babcock. Discussions are at a very preliminary stage and no approach has yet been made to the board of Babcock.” BAE said it was considering a number of options including the joint bid for Babcock. Both companies stressed there was no certainty that a joint bid would be launched.

In a cool response, Babcock noted the announcement and drew attention to its performance over the last five years, when its share price has more than quadrupled. It said it had an order book of £2bn and was an important member of the alliance to build the two carriers.

The announcement from VT and BAE left it unclear what would happen to Babcock’s support services business, which represents the bulk of its operations. One possibility is that BAE would take Babcock’s shipbuilding, with VT, which already has an extensive services business, taking its support services. Another possibility is that BAE might also take VT’s shipbuilding operations, in effect bringing the bulk of Britain’s naval shipbuilding under single ownership.