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UK SHIPBUILDING CONSOLIDATES AROUND BAE AND VT

27 Mar 06. The announcement in the FT that BAE Systems and VT Group are considering a joint bid for Babcock International, should pave the way for the historic unification of Britain’s naval shipyards.
While people close to the situation said talks were still at a very early stage, the two potential bidders – which own most of Britain’s shipyards – were forced by the Takeover Panel to make an announcement after mounting speculation that talks were going on. Babcock said it had not received a takeover approach. The shares, which have risen more than 80 per cent over the past year, climbed another 11p yesterday to close at 270p, giving it a market value of £564m.
The Ministry of Defence has been pushing for consolidation of Britain’s shipyards in an effort to cut costs and improve efficiency.

In a White Paper last year, Lord Drayson, defence procurement minister, said the “sector had failed consistently to deliver satisfactory performance” and “must be streamlined for greater efficiency and profitability”.
It is understood that the MoD has become impatient in recent weeks with progress towards consolidation and has made its feelings clear to the two main protagonists, BAE and VT.

BAE owns yards in Glasgow and Cumbria, while VT owns the Portsmouth naval yard. Babcock owns the yard in Rosyth in eastern Scotland and the Faslane yard, which maintains Britain’s nuclear submarine fleet. It also has a strong business supplying services to MoD, as does VT.

A senior banker said the potential deal made sense because it would increase the pace of consolidation, while VT could also pick up Babcock’s various defence services businesses. “It makes sense that VT leads this,” he said. “They have been close to doing a Babcock deal on a couple of occasions in the past.”
BAE, Britain’s biggest defence company, has been selling its European assets. But Mike Turner, its chief executive, has said his faith in a viable UK business was restored by the recent White Paper. The document singles out BAE as the partner of choice for the MoD across air, land and sea. BAE has cash to spend, though most is earmarked for deals in the lucrative US market. People close to the talks said it was unclear how VT would pay for its part of the deal, though a banker said it could offer its own paper.

However sources close to BATTLESPACE suggest that this is not the end of the consolidation. Swan Hunter has been left out of these talks; it is finishing the two ships it has on order having been paid handsomely up front by the Government. It is then likely that the site would become riverfront properties as is happening in Glasgow.

This brings us to the next stage of the process. As we have said earlier Glasgow is being gently gentrified by the Scottish Executive. Where warehouses populated the Clyde frontage, there are now huge building sites stretching up to Yarrow and beyond. As was seen at the recent Type 45 launch, great care has to be taken when launching such a large vessel when residential buildings are on the far bank, hence the use of tonnes of chains to slow the launch down. Both Yarrow and Govan are restricted in the size of boat they can launch and are also well placed to take part in the gentrification exercise, a lucrative sideline for BAE, already practised at many of it other sites. Babcock owns Rosyth, a yard with huge development potential for shipbuilding. After all the Government under John major paid for the building of a the huge Trident basin, only to shelve it at huge costs under the Maastricht vote agreement to take it to DML where some £750m was spent to bring the berths up to nuclear standard. Thus a move from Yarrow/Govan post-Type 45 would seem the logical move freeing huge acres of building land. Where does this leave Barrow? Barrow is in a high-unemployment area but has poor communications. Some sources suggested that GD could bid for the yard as a European submarine base; this is still a possibility given that the company

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