Babcock ready to do battle

Babcock International will defend itself with a robust trading statement this week as directors face up to the probability that they could be involved in a fierce take-over battle.

Already BAE Systems and VT have announced that they are interested in making a break-up bid for the company, with its interest ranging from the Rosyth and Faslane naval bases to First Engineering, while other potential predators include UK support services group Serco and US private equity firm Carlyle.

But chairman Gordon Campbell will signal that directors are not prepared to sell their independence on the cheap in the next few days when he is due to tell stockbrokers to upgrade their present expectations of profits from £28.4 million to £40m this year because of better-than-expected trading.

The statement, due before the end of the company’s financial year on Friday, will also emphasise the group’s prospects after a surge in its order intake to above the £2 billion mark.

While BAE and VT have not gone into details about their approach, analysts believe that BAE would take control of the group’s shipyards to facilitate its major contract to build aircraft carriers while VT would take charge of First Engineering, the Glasgow rail maintenance firm, and other parts of the group’s support services division. As part of the deal, VT would be expected to sell its own shipping interests to BAE. Such a move would dovetail nicely with the government’s repeated calls for rationalisation among its naval shipbuilding suppliers.

But some observers believe that Babcock could maximise its assets potential by arranging its own break-up deal through a sale of its shipyards to BAE directly while retaining First Engineering and the remainder of the support services operation, which account for approaching 80% of profits.