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VT Group drops Mouchel takeover bid

VT Group has this morning told the London Stock Exchange that it has decided to abandon its takeover bid of consultant Mouchel.

It said that in view of there being “no engagement” with Mouchel and the interest of Babcock in VT, it has decided not to make a formal offer at this time. The stock exchange’s takeover panel had set VT Group a deadline of 8 March to decide whether to announce a firm intention to make an offer for Mouchel.

The announcement ends three months of speculation over the future the consultant. The 12,000-strong VT Group headed by chairman and former Atkins boss Mike Jeffries and chief executive and ex-Balfour Beatty group MD Paul Lester offered 260p per share for Mouchel in December.

This was the firm’s second offer, up from 247p per share. It raised its offer for a third time last month, making a cash and shares offer worth 300p per share, but the true value of this offer was dependent on VT Group’s share price.

This “final proposal” confirmed that VT Group was looking to enter constructive discussions. The final proposal was conditional inter alia on the completion of satisfactory due diligence.

“In the next two years there will be fewer larger players working with smaller entrepreneurial spin off companies. We would like to be one of the big beasts”

Mouchel CEO Richard Cuthbert

Mouchel has not engaged with VT Group, and the announcement of VT Group’s final proposal was immediately countered by Babcock confirming it had already made a speculative inquiry to buy VT. Babcock’s approach expressly warned VT against pursuing its takeover of Mouchel, and said it reserved the right to withdraw its own offer.

VT Group today told the stock exchange that board continued to believe that an acquisition of Mouchel would create significant value for both Mouchel and VT shareholders.

“An acquisition would be firmly aligned with the successful strategy VT has pursued over the last five years of developing a broader based support services business, would result in cost synergies that naturally result from a combination of two businesses of the scale of VT and Mouchel and would be significantly earnings enhancing, and value creating, in the first full year of ownership on the basis of the terms of the final proposal,” it said.

“The board of VT hopes that, as and when circumstances change, the board of Mouchel would wish to enter discussions regarding a proposal that adds value for both sets of shareholders.”

It also said VT reserved the right to announce a possible offer for Mouchel within six months in the event that there is a material change in circumstance, the Mouchel board agrees to the making of such an announcement or an offer for Mouchel by a third party is announced.

Analysis

“VT Group’s managing director Paul Lester rang me and said we’re making a bid tomorrow; what is your chairman’s phone number?” remembers Richard Cuthbert of the start of the VT pursuit of his business.

“I said I’m not going to give it to you! And we’ve had no oral contact since then. Which is strange really when you think buying consultancies is all about hearts and minds.

“The £3 price per share was always a bit of a red herring too,” he adds. “I think it was Andy Brough at [merchant bank] Shroeders who said the bid needed to begin with a 3 before we talk. At the 3.05p offer on the table the board continued to think the bid was underpriced. If it had been £3.50 we would have had to recommend it - it would take us two or three years to get the share price up to that.”

What left the company vulnerable to a bid, Cuthbert admits, was that Mouchel had messed up in Dubai (where the company wrote off £30M in unpaid bills), in rail (where it was seen off by other consultants, principally those who had bought old British Rail design units when Mouchel hadn’t) and had a botched integration of consultant Hydra into the business.

“We are sorting it out, he says, and rebuilding the City’s confidence in the management team. “We’re winning work - two Highways Agency MACs last month, we are still number one in highways and a major player in local authority outsourcing. And there is a £2bn forward orders book. That’s why VT was so keen to buy us. Our best possible defence against any future bid is to perform, generate profit, turn it into cash and draw down our debt.”

He says in the next two years there will be fewer players in the UK consulting market. “The industry will be leaner; there is an oversupply of consulting engineers in the UK. There will be fewer larger players working with smaller entrepreneurial spin off companies. We would like to be one of the big beasts.”

By Jackie Whitelaw

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