BABCOCK/VT GROUP – COMMON SENSE PREVAILS
By Howard Wheeldon
24 Mar 10. Strategically and financially the Babcock acquisition of VT Group is in our view a great deal for the shareholders of both entities. This is consolidation at its best; consolidation that can and will work in the best interests of all concerned; consolidation that in our view will produce growth and potentially excellent future bottom line results.
Given that the agreed price for VT Group came out 45% higher than the 508p share price that VT Group closed on the night before the original approach we do not believe that shareholders of the Southampton based company that was formally known as Vosper Thornycroft have that much to complain about. Indeed, from the indicative 633.9p price first suggested by Babcock almost six weeks ago to the 735p* finally agreed can in our view be regarded as a very fine exit point for VT shareholders. They have done well but then the truth is that they fully deserve to as VT is an absolutely superb company and one whose success is surely down to the brilliance of its hugely popular CEO, Paul Lester. Equally true that Babcock is also a great company and that its success is due in no small measure to the skills of CEO, Peter Rogers. Long may that continue! Of course, the commonality of interest between the two companies goes very much further than just the markets they serve. For instance, both companies have over the past fifteen years been transformed from old style engineers to what today are almost solely support service companies predominantly serving the public sectors. But while Babcock may be seen to be paying a full price for VT it is in our view buying a company that with even more hard work from management should achieve great value for the new shareholders.
Meanwhile, we would totally discount rumours that surfaced late morning hinting that Boeing and/or Lockheed Martin may be casting an eye over Babcock. We reason this view suggesting that neither Boeing nor Lockheed Martin have been in the habit of making hostile bids. Additionally and more importantly perhaps, neither Babcock nor VT Group would appear to fit within the international strategy of either American giant.