Babcock confirms rejection of Serco bid approach

Babcock on Monday confirmed it had rejected in January a “highly preliminary” all-share takeover approach from outsourcing rival Serco.

“The board of Babcock...rejected it, having concluded that 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,” Babcock said in a statement.

Serco reportedly saw the merger resulting in a defence services through a combination of Babcock’s expertise in maintaining the navy’s nuclear submarine fleet with Serco’s work at the Atomic Weapons Establishment in Berkshire.

Babcock said it had revealed the approach given it was currently undertaking an investor roadshow after full-year results and capital markets day and added "no further proposal has been received".

Babcock chairman Mike Turner is due to step down next month when he will be replaced by Ruth Cairnie. The company issued a profits warning in May.

RBC Capital Markets said there was some merit in a merger, in a note to clients. "Babcock, in our view, needs a new management team to restore credibility, there would be decent synergies given the overlap and Serco’s platform can take more revenue, although it would increase its exposure to the UK.

"However, given the impending change in chairman at Babcock and the fact that Serco has just done a US deal and raised money - the timing may now have passed, although the fact that all this has been leaked now, may suggest that interested parties wanted to bring the approach to Babcock’s beleaguered shareholders' attention."