Babcock's second punch 'no knockout' for VT Group

VT GROUP has set its sights on an offer of 800p a share from suitor Babcock International, and analysts last night said it would take an approach of at least 750p to get VT to open its books.

Babcock yesterday increased its proposed offer to buy the defence and public services firm to as much as 1.29 billion, with a proposal to pay 0.701 new Babcock shares plus an unspecified sum of cash for every VT share. VT said the proposal was worth between 680p and 715p a share.

Shares in VT closed up 6.2 per cent at 660p, having earlier hit a new 20-month high of 665p and extended their gains so far this week to 30 per cent. Shares in Babcock ended the day down 2.3 per cent at 553p.

Mike Allen, an analyst at Panmure, said: "Babcock has thrown two punches but I don't think the second has been a knockout.

"Babcock clearly need to see VT's books but 700p doesn't look to have been enough so perhaps 750p could be a starting point."

A Babcock spokesman said the firm would only proceed with its current offer with the approval of the VT board. "One of the conditions of the offer is that it has the recommendation of the VT board," said the spokesman, denying reports that Babcock was willing to go hostile.

Analysts also said Babcock would wish to avoid going hostile in order to access VT's books before committing on price. It will want to assess the long-term value of the group's defence contracts, which can be difficult to gauge from a distance.

VT said the latest cash-and-shares proposal was only a "small improvement" on the 633.9p previously offered and "continued to significantly undervalue VT and its prospects".

Babcock's chief executive, Peter Rogers, has said that combining the two firms could save more than 27m a year.