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Mouchel challenges VT Group’s bid and strategy

Consultant Mouchel has broken its silence over VT Group’s attempted takeover bid this week, claiming it would “add no value”.

Speaking exclusively to NCE, Mouchel chief executive Richard Cuthbert said VT Group’s offer of 260p per share “materially undervalued” his company.

He also challenged the robustness of defence consultant VT Group’s business model.

Cuthbert was speaking to NCE after weeks of speculation over his company’s future. Last week the consultant secured additional headroom on one of its banking covenants to free up funds to fight VT Group’s bid (News last week).

VT Group offered to buy Mouchel for 260p a share in December 2009. Mouchel’s board rejected the bid and the London Stock Exchange has given VT Group until 8 March to complete or abandon the takeover.

Share price debate

Sources close to VT Group say Mouchel is holding out for at least 300p per share. As NCE went to press Mouchel’s share price was 248.5p.

“VT Group has materially undervalued the company,” said Cuthbert. “I understand how we can add value to VT Group, but I cannot see how VT Group could add value to us.”

Cuthbert slammed VT Group’s approach as “opportunistic”, admitting that Mouchel had had a bad year in 2008/09, when not enough work had been won.

“We had dropped the ball on winning work. It has taken us a year to put this right, and we are now back where we want to be,” he said. The acquisition of management consultant Hedra for £50M in 2008 was now adding value to operations, he said.

NCE understands Mouchel has retained two Highways Agency Managing Agent Contractor (MAC) contracts worth £400M over the coming fi ve years, though Cuthbert could not confirm this.

He said wins in general were now flowing and the consultant’s order book was at a record high.

“I am increasingly confident that we will have good growth next year on the back of these wins,” he said. Cuthbert added that VT Group’s bid had been an “unwelcome distraction”.

“Their approach feels hostile, which feels odd for us, as our business is driven by relationships,” he said.

“I understand how we could add value to VT Group, but I cannot see how VT Group could add value to us.”

Richard Cuthbert

VT Group is keen to exploit Mouchel’s local authority work. The consultant has long term deals with Liverpool, Rochdale, Knowsley, Oldham, Hackney and Middlesbrough councils. Cuthbert said this portfolio would not be enhanced by a merger with VT Group.

“They [VT Group] simply have the wrong skillset, and a small number of clients - around 20 local authority clients out of 160,” he said.

Cuthbert also challenged VT Group’s business model. The firm is cash-rich from the sale of its shipbuilding arm to BAE Systems in 2009.

“If we were to have a firm offer, we would be entitled to perform due diligence on VT Group.

“Their approach feels hostile, which feels odd for us, as our business is driven by relationships”

“If we did that we would be concerned about their resilience to cuts in defence spending, and we would want to know the full impact the sale of the shipbuilding arm has had on the business,” he said.

“Their US business also seems to run on very low margins and has had two [recent] changes in management - we would want to know what exactly was going on there,” he said.

He also queried VT Group’s early foray into local authority work in the UK.

The firm has yet to close the £700M Wakefi eld waste PFI deal and Cuthbert said the company’s acquisition of nuclear decommissioning firm Project Services in 2008 was “risky” because it lacked existing relationships in the field.

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