Yahoo Finance Babcock rejects Serco takeover, saying it lacks ‘strategic merit’
Aerospace and defence company Babcock (BAB.L), which services the Royal Navy’s submarine fleet, confirmed on Monday that in January it rejected a proposed takeover from smaller rival Serco (SRP.L).
The move, if it had gone ahead, would have created a £4bn ($5bn) defence outsourcing giant and combined the Ministry of Defence’s two largest suppliers.
Babcock said in a statement that the takeover approach from Serco, which happened on 23 January, “had no strategic merit” and that it was also not in the best interests of its shareholders, customers, or stakeholders.
Noting that the proposal was “unsolicited and highly preliminary,” Babcock said that “no further proposal had been received.”
Serco is understood to have also approached Babcock regarding a takeover in late 2018. Serco declined to comment.
Babcock, a crucial supplier of engineering and defence services to the ministry, has had a difficult few months.
In May, it reported a drop in operating profits and cut its outlook for the current financial year, warning that it would be “challenging.”
But Babcock is nonetheless much larger than Serco. Its £235m in profits dwarf the £74m made by its rival, and it employs around 35,000 people.
Babcock has been offloading some of its businesses in an effort to focus on its core markets, which it sees as defence, aerial emergency services, and the UK’s civil nuclear sector.
Two of its larger contracts are also set to come to an end, including one to decommission Magnox nuclear reactors in the UK.
It has also been targeted by short-sellers and an anonymous group calling itself Boatman Capital that in November 2018 accused it of “burying bad news.”
In a report, the group also accused Babcock of overpaying for its 2014 takeover of helicopter company Avincis. Babcock called the claims in the report “false and malicious.”
Earlier in June, Babcock announced that it was restructuring its ailing nuclear business by moving the division that works with the Royal Navy into the same division as its civil nuclear work.
In May, Serco announced that it was buying the naval systems division of Alion, a defence and national security systems company, for $225m (£180m).
