Babcock confirms it turned down Serco's buyout offer

(Reuters) - British engineering services group Babcock International Group Plc on Monday confirmed that it had rejected an offer by rival Serco Group in January to combine the two companies in a deal that would have created a company worth 4 billion pounds.

Babcock said that on 23 January it received an unsolicited and preliminary proposal from Serco regarding a potential all-share deal. No further proposal had been received, it added.

"A combination of the two companies had no strategic merit and was not in the best interests of Babcock's shareholders, customers or wider stakeholders," the company said in a statement.

The company's shares were up 4.4% at 485 pence of 0750 GMT, trimming its losses to just about 1% so far this year. They were worth as much as 8 pounds last July before a series of setbacks.

Contractors such as Babcock, whose biggest customer is Britain's Defence Ministry, have been hit by a slowdown in decision-making because ahead of Brexit. The collapse of contractors Carillion and Interserve has prompted many companies to rethink strategy.

Serco, which provides services across defence, security, health and transport, has focused on winning public business abroad and cutting costs to weather a slowdown in UK outsourcing. It is led by Rupert Soames, a grandson of wartime prime minister Winston Churchill.

Babcock has also been cutting costs to offset difficult operating conditions but questions over management and strategy have plagued it.

Babcock remains the larger of the two companies, with a market valuation of around 2.4 billion pounds. Serco, whose shares, slipped 0.4 percent on Monday to 135.5 pence, is valued at just under 1.7 billion pounds.

Serco's approach was first reported by The Sunday Times.

(Reporting by Pushkala Aripaka in Bengaluru; Editing by Bernard Orr/Keith Weir)