Support services group says merger with reluctant target would benefit both companies and improve capability across infrastructure, equipment support and training sectors

Support services group Babcock has set out its manifesto for furthering takeover talks with the reluctant VT Group.

In a statement released today Babcock said a merger with VT, which today rejected a second offer from the defence specialist of between 680p and 715p per share, would benefit both parties by improving capability across the infrastructure, equipment support and training sectors.

It also said that a VT takeover of Mouchel would be detrimental to the firm’s future, adding: “We believe such diversification would be challenging to manage and expose VT’s shareholders to cutbacks in local government and capital programme spending following the next general election.

“By contrast, the majority of the revenues from a combination of Babcock and VT would be derived from long-term engineering support contracts on existing assets.”

Babcock’s latest offer would comprise a mixture of cash and Babcock shares, but in a statement VT said the deal would restrict its growth plans, increase its exposure to the Ministry of Defence, which faces budget cuts, and put a strain on Babcock’s “already leveraged balance sheet”.

But Babcock retaliated this afternoon, adding: “We believe that the strength of the combined operation would allow it to take on a broader range of larger, more complex support services contracts than either business would be likely to win alone.”

Meanwhile, Babcock remains “committed to working towards a recommended transaction and establishing a constructive dialogue with VT”.

At the same time, Mouchel’s board is considering the terms of VT’s latest proposal of 294p per share, which was announced shortly after Mouchel confirmed it had won £405m worth of work from the Highways Agency.