Babcock International Group PLC
Recommended Acquisition of
VT Group plc
Summary
• The boards of Babcock International Group PLC ("Babcock") and VT Group plc ("VT") are pleased to announce that they have reached agreement on the terms of the recommended acquisition by Babcock of all of the issued and to be issued share capital of VT (the "Acquisition").
• As set out below, the terms of the Acquisition value each VT Share at 750 pence based on the undisturbed Babcock share price and 734.9 pence based on the latest Babcock Closing Price. On the basis of Babcock's latest Closing Price, the terms of the Acquisition value the existing share capital of VT at approximately £1,326 million.
• Under the terms of the Acquisition, VT Shareholders will receive:
for each VT Share: 361.6 pence in cash; and
0.701 New Babcock Shares.
• The consideration under the terms of the Acquisition represents a value of:
o 750 pence per VT Share, based on the undisturbed Closing Price of 554 pence per Babcock Share on 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT), representing a premium of approximately 42 per cent. to the average Closing Price of 527 pence per VT Share for the one month trading period to 12 February 2010;
o 734.9 pence per VT Share, based on the latest Closing Price of 532.5 pence per Babcock Share on 22 March 2010 (being the last Business Day prior to the date of this announcement), representing a premium of approximately 39 per cent. to the average Closing Price of 527 pence per VT Share for the one month trading period to 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT); and
o 734.9 pence per VT Share, based on the latest Closing Price of 532.5 pence per Babcock Share on 22 March 2010 (being the last Business Day prior to the date of this announcement), representing a premium of approximately 45 per cent. to VT’s Closing Price of 508 pence on 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT).
• Under the terms of the Acquisition, VT Shareholders will not receive any VT final dividend in respect of the financial year ending 31 March 2010. The Consideration Shares to be issued pursuant to the Acquisition will not carry any entitlement to any final dividend or second interim dividend of Babcock declared, made or paid in respect of the financial year ending 31 March 2010.
• The Acquisition will include a Mix and Match Facility, so that VT Shareholders will be able to elect to vary the proportions of cash and shares they receive, subject to equal and opposite elections made by other VT Shareholders. The Mix and Match Facility will not change the total number of shares to be issued by Babcock pursuant to the Acquisition.
• Following completion of the Acquisition, VT Shareholders will own approximately 36 per cent. of the Combined Group and will participate in the future growth prospects of the Combined Group.
• The Babcock Board believes that the Acquisition will bring together two groups with complementary operating models, customers and core competencies and has a compelling strategic rationale as well as financial logic.
• The Acquisition is expected to be earnings enhancing for Babcock in the first full financial year following the Effective Date, including through the realisation of anticipated merger benefits of approximately £50 million per annum (pre-tax) and financial efficiencies of a further £8 million per annum (post-tax).
• Babcock believes that the Combined Group will:
o be better placed to deliver a broader range of solutions to existing customers through an enhanced range of capabilities and expertise;
o have increased importance and relevance to key customers, allowing an ability to work in partnership to provide enhanced solutions, identify and address customer needs and leaving the Combined Group better positioned to deliver increased services and efficiencies;
o be better able to satisfy growing customer requirements for large and complex contracts and to increase work share;
o build on an excellent reputation and track record of delivery to sell complementary capabilities in overseas markets where the Combined Group has an established presence;
o possess increased scale, a stronger customer proposition and enhanced business opportunities across the Defence, Nuclear, Critical Infrastructure and International operations, in particular:
a broad and deep capability in relation to the UK Air, Land and Sea defence markets across four main support areas: infrastructure, equipment support, training and communications;
a strong nuclear business with significant consultancy positions along with presence at tiers one, two and three and with approximately 3,000 employees servicing defence and civil nuclear sectors; and
a broader offering in Critical Infrastructure with an opportunity to develop and deliver training and education solutions to civil customers, as well as an enhanced communications offering;
o be a highly cash generative business and have a strong balance sheet with access to a deeper pool of capital markets;
o have combined pro forma revenues of approximately £3 billion; and
o have excellent visibility and security of revenue as a result of a combined order book of approximately £10 billion supported by long-term contracts.
• The VT Directors, who have been so advised by Rothschild, consider the terms of the Acquisition to be fair and reasonable. In providing advice to the VT Directors, Rothschild has taken into account the VT Directors’ commercial assessment of the Acquisition. The VT Directors intend to recommend unanimously that VT Shareholders vote in favour of the resolutions to be proposed at the VT General Meeting and the Scheme Meeting, as the VT Directors have irrevocably undertaken to do in respect of their own beneficial holdings of 436,148 VT Shares in aggregate, representing approximately 0.2 per cent. of the issued ordinary share capital of VT.
• The Babcock Directors, who have received financial advice from J.P. Morgan Cazenove and Evercore Partners, consider the terms of the Acquisition to be fair and reasonable. In providing advice to the Babcock Directors, J.P. Morgan Cazenove and Evercore Partners have relied upon the Babcock Directors’ commercial assessment of the Acquisition. The Babcock Directors intend to recommend unanimously that Babcock Shareholders vote in favour of the resolutions to approve and implement the Acquisition, as the Babcock Directors intend to do in respect of their own beneficial holdings of 1,040,171 Babcock Shares in aggregate, representing approximately 0.5 per cent. of the issued ordinary share capital of Babcock.
• It is intended that the Acquisition will be effected by way of a Court-sanctioned scheme of arrangement under Part 26 of the 2006 Act. It is expected that a Scheme Document, Prospectus and Babcock Circular will be published as soon as practicable and that, subject to the satisfaction, or where relevant waiver, of all relevant conditions, the Scheme is expected to become Effective, and the Acquisition completed, by the end of July 2010.
Commenting on the Acquisition, Mike Turner, Chairman of Babcock said:
"We are delighted to have reached agreement with the board of VT to recommend our compelling offer for the company. The acquisition of such a high quality and complementary business is in line with our strategy to be the leading engineering support services company in the UK. We look forward to bringing the enhanced capabilities of the enlarged Babcock to new and existing customers".
Commenting on the Acquisition, Mike Jeffries, Chairman of VT said:
"The VT Board believes that Babcock’s offer represents an attractive proposition for VT Shareholders both through the immediate offer premium and through the opportunity to benefit from the synergies available from combining our two businesses".
For further information contact:
Ginny Pulbrook
Citigate Dewe Rogerson
Tel: 020 7282 2945
