VT Group Rejection of Babcock's Revised Proposal

 

TIDMVTG TIDMBAB 
 
RNS Number : 3324H 
VT GROUP PLC 
18 February 2010 
 

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| NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN,     | 
| INTO OR FROM ANY JURISDICTION (INCLUDING THE UNITED STATES) WHERE TO DO  | 
| SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF   | 
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| 18 February 2010           |                                             | 
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| FOR IMMEDIATE RELEASE      |                                  |          | 
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| VT Group plc - VT rejects Babcock's revised proposal                     | 
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VT Group plc ("VT" or the "Company") confirms that it received a revised 
proposal (the "Revised Proposal") from Babcock International Group plc 
("Babcock") on 16 February.  The Board of VT announces that it has today 
unanimously rejected this Revised Proposal. 
 
The Revised Proposal, which was between 680 and 715 pence per VT share, again 
funded through 0.701 new Babcock shares plus cash, was only a small improvement 
on Babcock's previous indicative offer, continued to significantly undervalue VT 
and its prospects and still relied on returning the net cash proceeds from the 
exit of BVT, of which VT shareholders already have the benefit.  This Revised 
Proposal represents: 
 
-A premium of 27% to 33% to the VT share price (537.5 pence) as at the close of 
business on 2 February, the day before Babcock's approach. 
 
-A premium of 29% to 36% to VT's one month average share price (527.1 pence) 
prior to Babcock's interest becoming public. 
 
Babcock's proposal would have resulted in VT shareholders having a material 
exposure to the enlarged group.  The Board of VT maintains that Babcock's 
rationale for a combination of the two businesses is strategically unsound: 
 
-The transaction would be a retrograde strategic step for VT, which has 
successfully reduced its exposure to MoD, which could be susceptible to budget 
cutbacks following the election.  By contrast, Babcock, through the acquisition 
of DML in 2007, has significantly increased its exposure to MoD. 
 
-Incremental growth of the enlarged group would be restricted.  Babcock's 
position as a contractor to MoD in the marine and Defence Estates areas is 
likely to create a conflict of interest that would prevent the enlarged group 
from participating in the potential outsourcing of MoD's procurement activities. 
 This is an area of potential growth in MoD and from which a standalone VT is 
extremely well positioned to benefit. 
 
-The benefits of the potential cost synergies postulated by Babcock, to the 
extent that they can be realised, are unlikely to be fully retained by the 
enlarged group as MoD would typically expect to share in these cost savings, 
which in some cases is a contractual requirement. 
 
-The transaction would put further strain on Babcock's already leveraged balance 
sheet, which also remains exposed to pension liabilities of over GBP2 billion 
and a current net deficit of GBP287m1.  Post transaction and based on the 
Revised Proposal, the enlarged group would have pro forma 2009 net debt / EBITDA 
of 2.8 - 3.0x2. 
 
The Board of VT considers that the Company will produce higher growth and better 
returns for shareholders as an independent business pursuing its support 
services growth strategy.  Further, the acquisition of Mouchel is fully aligned 
to this strategy and will offer additional opportunities for enhanced returns. 
 
This announcement has not been made with the consent of Babcock and there can be 
no certainty that an offer will be forthcoming or as to the terms of any offer 
except to the extent announced by Babcock on 15 February 2010. 
 
A copy of this announcement will be available at www.vtplc.com. 
 
 
The Directors of VT accept responsibility for the information contained in this 
announcement.  To the best knowledge and belief of the Directors of VT, who have 
taken all reasonable care to ensure such is the case, the information contained 
in this announcement is in accordance with the facts and does not omit anything 
likely to affect the import of such information. 
 
 
Notes 
 
1.   Source: Babcock's 2009 half year report. 
2.   Based on year to 31 March 2009 EBITDA for Babcock of GBP171.5 million 
(source: Babcock's 2009 annual accounts) and for VT of GBP99.9 million (full 
year to 31 March 2009 as restated in VT's 2009 half year report), net debt for 
Babcock as at 30 September 2009 of GBP313.9 million (source: Babcock's 2009 half 
year report) and pro forma net cash for VT as at 30 September 2009 of GBP98.7 
million (source: VT's 2009 interim results presentation), and cash consideration 
for the Revised Proposal of GBP546.8 million to GBP611.3 million assuming a 
share price for Babcock of 547 pence (closing price on 16 February 2010, on the 
evening of which the Revised Proposal was submitted). 
 
 
Dealing Disclosure Requirements 
 
Under the provisions of Rule 8.3 of the Takeover Code (the "Code"), if any 
person is, or becomes, "interested" (directly or indirectly) in 1% or more of 
any class of "relevant securities" of VT or Babcock, all "dealings" in any 
"relevant securities" of that company (including by means of an option in 
respect of, or a derivative referenced to, any such "relevant securities") must 
be publicly disclosed by no later than 3.30 pm (London time) on the London 
business day following the date of the relevant transaction. This requirement 
will continue until the date on which the 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 VT or Babcock, 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 VT or Babcock 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 the companies in whose "relevant securities" "dealings" 
should be disclosed, and the number of such securities in issue, can be found on 
the Takeover 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. 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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