Recommended Acquisition of. VT Group plc

Transcription

1 THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS AND INVESTORS SHOULD NOT SUBSCRIBE FOR ANY BABCOCK INTERNATIONAL GROUP PLC SHARES EXCEPT ON THE BASIS OF INFORMATION IN THE PROSPECTUS WHICH IS PROPOSED TO BE PUBLISHED BY BABCOCK INTERNATIONAL GROUP PLC IN DUE COURSE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION For immediate release 23 March 2010 Babcock International Group PLC Recommended Acquisition of VT Group plc Summary The boards of Babcock International Group PLC ("Babcock") and VT Group plc ("VT") are pleased to announce that they have reached agreement on the terms of the recommended acquisition by Babcock of all of the issued and to be issued share capital of VT (the "Acquisition"). As set out below, the terms of the Acquisition value each VT Share at 750 pence based on the undisturbed Babcock share price and pence based on the latest Babcock Closing Price. On the basis of Babcock's latest Closing Price, the terms of the Acquisition value the existing share capital of VT at approximately 1,326 million. Under the terms of the Acquisition, VT Shareholders will receive: for each VT Share: pence in cash; and New Babcock Shares. The consideration under the terms of the Acquisition represents a value of: o 750 pence per VT Share, based on the undisturbed Closing Price of 554 pence per Babcock Share on 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT), representing a premium of approximately 42 per cent. to the average Closing Price of 527 pence per VT Share for the one month trading period to 12 February 2010; o pence per VT Share, based on the latest Closing Price of pence per Babcock Share on 22 March 2010 (being the last Business Day prior to the date of this announcement), representing a premium of approximately 39 per cent. to the average Closing Price of 527 pence per VT Share for the one month

2 trading period to 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT); and o pence per VT Share, based on the latest Closing Price of pence per Babcock Share on 22 March 2010 (being the last Business Day prior to the date of this announcement), representing a premium of approximately 45 per cent. to VT s Closing Price of 508 pence on 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT). Under the terms of the Acquisition, VT Shareholders will not receive any VT final dividend in respect of the financial year ending 31 March The Consideration Shares to be issued pursuant to the Acquisition will not carry any entitlement to any final dividend or second interim dividend of Babcock declared, made or paid in respect of the financial year ending 31 March The Acquisition will include a Mix and Match Facility, so that VT Shareholders will be able to elect to vary the proportions of cash and shares they receive, subject to equal and opposite elections made by other VT Shareholders. The Mix and Match Facility will not change the total number of shares to be issued by Babcock pursuant to the Acquisition. Following completion of the Acquisition, VT Shareholders will own approximately 36 per cent. of the Combined Group and will participate in the future growth prospects of the Combined Group. The Babcock Board believes that the Acquisition will bring together two groups with complementary operating models, customers and core competencies and has a compelling strategic rationale as well as financial logic. The Acquisition is expected to be earnings enhancing for Babcock in the first full financial year following the Effective Date, including through the realisation of anticipated merger benefits of approximately 50 million per annum (pre-tax) and financial efficiencies of a further 8 million per annum (post-tax). 1 Babcock believes that the Combined Group will: o be better placed to deliver a broader range of solutions to existing customers through an enhanced range of capabilities and expertise; o have increased importance and relevance to key customers, allowing an ability to work in partnership to provide enhanced solutions, identify and address customer needs and leaving the Combined Group better positioned to deliver increased services and efficiencies; 1 These amounts include the previously announced anticipated merger benefits of approximately 27 million per annum (pre-tax), and the further benefit of approximately 6 million per annum expected to come from a reduction in the effective corporation tax rate of the Combined Group, each as previously announced by Babcock on 15 February Nothing in this announcement should be interpreted to mean that the future earnings per share of Babcock will necessarily match or exceed the historical earnings per share of Babcock or VT.

3 o be better able to satisfy growing customer requirements for large and complex contracts and to increase work share; o build on an excellent reputation and track record of delivery to sell complementary capabilities in overseas markets where the Combined Group has an established presence; o possess increased scale, a stronger customer proposition and enhanced business opportunities across the Defence, Nuclear, Critical Infrastructure and International operations, in particular: a broad and deep capability in relation to the UK Air, Land and Sea defence markets across four main support areas: infrastructure, equipment support, training and communications; a strong nuclear business with significant consultancy positions along with presence at tiers one, two and three and with approximately 3,000 employees servicing defence and civil nuclear sectors; and a broader offering in Critical Infrastructure with an opportunity to develop and deliver training and education solutions to civil customers, as well as an enhanced communications offering; o be a highly cash generative business and have a strong balance sheet with access to a deeper pool of capital markets; o have combined pro forma revenues of approximately 3 billion; and o have excellent visibility and security of revenue as a result of a combined order book of approximately 10 billion supported by long-term contracts. The VT Directors, who have been so advised by Rothschild, consider the terms of the Acquisition to be fair and reasonable. In providing advice to the VT Directors, Rothschild has taken into account the VT Directors commercial assessment of the Acquisition. The VT Directors intend to recommend unanimously that VT Shareholders vote in favour of the resolutions to be proposed at the VT General Meeting and the Scheme Meeting, as the VT Directors have irrevocably undertaken to do in respect of their own beneficial holdings of 436,148 VT Shares in aggregate, representing approximately 0.2 per cent. of the issued ordinary share capital of VT. The Babcock Directors, who have received financial advice from J.P. Morgan Cazenove and Evercore Partners, consider the terms of the Acquisition to be fair and reasonable. In providing advice to the Babcock Directors, J.P. Morgan Cazenove and Evercore Partners have relied upon the Babcock Directors commercial assessment of the Acquisition. The Babcock Directors intend to recommend unanimously that Babcock Shareholders vote in favour of the resolutions to approve and implement the Acquisition, as the Babcock Directors intend to do in respect of their own beneficial holdings of 1,040,171 Babcock Shares in aggregate, representing approximately 0.5 per cent. of the issued ordinary share capital of Babcock.

4 It is intended that the Acquisition will be effected by way of a Court-sanctioned scheme of arrangement under Part 26 of the 2006 Act. It is expected that a Scheme Document, Prospectus and Babcock Circular will be published as soon as practicable and that, subject to the satisfaction, or where relevant waiver, of all relevant conditions, the Scheme is expected to become Effective, and the Acquisition completed, by the end of July Commenting on the Acquisition, Mike Turner, Chairman of Babcock said: "We are delighted to have reached agreement with the board of VT to recommend our compelling offer for the company. The acquisition of such a high quality and complementary business is in line with our strategy to be the leading engineering support services company in the UK. We look forward to bringing the enhanced capabilities of the enlarged Babcock to new and existing customers". Commenting on the Acquisition, Mike Jeffries, Chairman of VT said: "The VT Board believes that Babcock s offer represents an attractive proposition for VT Shareholders both through the immediate offer premium and through the opportunity to benefit from the synergies available from combining our two businesses". Babcock is hosting an analyst presentation today at 9.00 a.m. at 20 Moorgate, London EC2R 6DA. The analyst presentation will be available on Babcock's corporate website at This summary should be read in conjunction with the main body of the following announcement and Appendices. Enquiries Babcock International Group PLC Peter Rogers, Chief Executive Tel: +44 (0) Bill Tame, Group Finance Director Franco Martinelli, Group Financial Controller J.P. Morgan Cazenove (joint financial adviser and corporate broker to Babcock) Andrew Truscott Tel: +44 (0) Malcolm Moir Guy Marks Christopher Dickinson Evercore Partners (joint financial adviser to Babcock) Bernard Taylor Tel: +44 (0)

5 Julian Oakley Financial Dynamics (PR adviser to Babcock) Andrew Lorenz Tel: +44 (0) Richard Mountain VT Group plc Paul Lester Tel: +44 (0) Philip Harrison Rothschild (financial adviser to VT) Robert Leitão Tel: +44 (0) Ravi Gupta Merrill Lynch (corporate broker to VT) Mark Astaire Tel: +44 (0) Peter Brown Citigate Dewe Rogerson (PR adviser to VT) Ginny Pulbrook Tel: +44 (0) Patrick Donovan The conditions to, and certain further terms of, the Acquisition are set out in Appendix 1. The bases and sources of certain financial information contained in the following announcement, and certain additional financial and operational information, are set out in Appendix 2. Details of the irrevocable undertakings received by Babcock in relation to the Acquisition are set out in Appendix 3. Certain definitions and terms used in the following announcement are set out in Appendix 4. J.P. Morgan plc, which conducts its UK investment banking businesses as J.P. Morgan Cazenove and is authorised and regulated in the United Kingdom by the FSA, is acting as financial adviser to Babcock and no-one else in connection with the contents of this announcement and will not be responsible to any person other than Babcock for providing the protections afforded to customers of J.P. Morgan plc nor for providing advice in relation to any matter referred to herein. Evercore Partners Limited is authorised and regulated in the United Kingdom by the FSA, is acting as financial adviser to Babcock and for no-one else in connection with the matters set out in this announcement and will not be responsible to anyone other than Babcock for providing the protections afforded to clients of Evercore Partners Limited nor for providing advice in relation to any matter referred to herein.

6 Rothschild and Merrill Lynch are authorised and regulated in the United Kingdom by the FSA, are acting for VT and for no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than VT for providing the protections afforded to clients of Rothschild and Merrill Lynch nor for providing advice in relation to any matter referred to herein. The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements. This announcement has been prepared for the purposes of complying with English law and the Takeover Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of England. This announcement is not intended to, and does not constitute, or form part of, an offer to sell or an invitation to purchase or subscribe for any securities or a solicitation of any vote or approval in any jurisdiction. This announcement does not constitute a prospectus or a prospectus equivalent document. Shareholders of Babcock and VT are advised to read carefully the formal documentation in relation to the Acquisition once it has been despatched. The proposals of the Acquisition will be made solely through the Scheme Document, which will contain the full terms and conditions of the Scheme, including details of how to vote with respect to the Scheme. Any response to the proposals should be made only on the basis of the information in the Scheme Document. Overseas jurisdictions This announcement is not an offer of, or solicitation of an offer to purchase, securities in the United States and the New Babcock Shares, which will be issued in connection with the Acquisition, have not been, and will not be, registered under the US Securities Act or under the securities law of any state, district or other jurisdiction of the United States, Australia, Canada or Japan and no regulatory clearance in respect of the New Babcock Shares has been, or will be, applied for in any jurisdiction other than the UK. The New Babcock Shares may not be offered, sold, or, delivered, directly or indirectly, in, into or from the United States absent registration under the US Securities Act or an exemption from registration. It is expected that the New Babcock Shares to be issued in the Scheme will be issued in reliance upon the exemption from the registration requirements of the US Securities Act provided by Section 3(a)(10) thereof. Under applicable US securities laws, persons (whether or not US persons) who are or will be affiliates (within the meaning of the US Securities Act) of Babcock or VT prior to, or of Babcock after, the Effective Date will be subject to certain transfer restrictions relating to the New Babcock Shares received in connection with the Scheme. If the Acquisition is implemented by way of an Offer, it will be made in accordance with the procedural and filing requirements of US securities laws, to the extent applicable. The Acquisition relates to the shares of a UK company and is proposed to be made by means of a scheme of arrangement provided for under the laws of England and Wales. The Acquisition is subject to the disclosure requirements and practices applicable in the United Kingdom to schemes of arrangement, which may differ from the disclosure and other requirements of the

7 securities laws of jurisdictions other than the United Kingdom. Financial information included in the relevant documentation will have been prepared in accordance with accounting standards applicable in the United Kingdom that may not be comparable to the financial statements of non-u.k. companies. The New Babcock Shares may not be offered, sold, resold, delivered or distributed, directly or indirectly, in, into or from Canada, Australia or Japan or to, or for the account or benefit of, any resident of Australia, Canada or Japan absent an exemption from registration or an exemption under relevant securities law. Copies of this announcement and any formal documentation relating to the Acquisition are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from Canada, Australia or Japan and persons receiving such documents (including custodians, nominees and trustees) must not mail or otherwise forward, distribute or send it in, into or from Canada, Australia or Japan. Forward-looking statements Certain statements in this announcement are forward-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These risks, uncertainties or assumptions could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this document regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement. Except as required by law, neither of Babcock or VT is under an obligation to update or keep current the forward-looking statements contained in this announcement or to correct any inaccuracies which may become apparent in such forward-looking statements. No statement in this announcement is intended as a profit forecast or profit estimate and no statement in this announcement should be interpreted to mean that the future earnings per share of the Combined Group, Babcock and/or VT for current or future financial years will necessarily match or exceed the historical or published earnings per share of Babcock or VT. Dealing Disclosure Requirements Under the provisions of Rule 8.3 of the Code, if any person is, or becomes, 'interested' (directly or indirectly) in 1 per cent. or more of any class of 'relevant securities' of Babcock or of VT, all 'dealings' in any 'relevant securities' of Babcock or of VT (including by means of an option in respect of, or a derivative referenced to, any such 'relevant securities') must be publicly disclosed by not later than 3.30 p.m. (London time) on the London business day following the date of the relevant transaction. This requirement will continue until the date on which any offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise withdrawn or on which the 'offer period' otherwise ends. If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire an 'interest' in 'relevant securities' of Babcock or VT, they will be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the Code, all 'dealings' in 'relevant securities' of Babcock or of VT by Babcock or VT or by any of their respective 'associates', must be disclosed by no later

8 than noon (London time) on the London business day following the date of the relevant transaction. A disclosure table, giving details of companies in whose 'relevant securities' 'dealings' should be disclosed, and the number of such securities in issue, can be found on the Panel's website at 'Interests in securities' arise, in summary, when a person has long economic exposure, whether conditional or absolute, to changes in the price of securities. In particular, a person will be treated as having an 'interest' by virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced to, securities. Terms in quotation marks are defined in the Code, which can also be found on the Panel's website. If you are in any doubt as to whether or not you are required to disclose a 'dealing' under Rule 8, you should consult the Panel. Publication on Babcock website A copy of this announcement will be available on Babcock's website at ( by no later than 12 noon (London time) on 24 March 2010.

9 THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS AND INVESTORS SHOULD NOT SUBSCRIBE FOR ANY BABCOCK INTERNATIONAL GROUP PLC SHARES EXCEPT ON THE BASIS OF INFORMATION IN THE PROSPECTUS WHICH IS PROPOSED TO BE PUBLISHED BY BABCOCK INTERNATIONAL GROUP PLC IN DUE COURSE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT JURISDICTION For immediate release 23 March Introduction Babcock International Group PLC Recommended Acquisition of VT Group plc The boards of Babcock and VT are pleased to announce that they have reached agreement on the terms of the recommended Acquisition by Babcock of all of the issued and to be issued share capital of VT. It is intended that the Acquisition will be effected by way of a Court-sanctioned scheme of arrangement under Part 26 of the 2006 Act. 2. The Acquisition The Acquisition will be on the terms and subject to the Conditions set out below and in Appendix 1, and the full terms and conditions to be set out in the Scheme Document. As set out below, the terms of the Acquisition value each VT Share at 750 pence based on the undisturbed Babcock share price and pence based on the latest Babcock Closing Price. On the basis of Babcock's latest Closing Price, the terms of the Acquisition value the existing share capital of VT at approximately 1,326 million. Under the terms of the Acquisition, VT Shareholders will receive: for each VT Share: pence in cash; and New Babcock Shares. The consideration under the terms of the Acquisition represents a value of: o 750 pence per VT Share, based on the undisturbed Closing Price of 554 pence per Babcock Share on 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT), representing a

10 premium of approximately 42 per cent. to the average Closing Price of 527 pence per VT Share for the one month trading period to 12 February 2010; o pence per VT Share, based on the latest Closing Price of pence per Babcock Share on 22 March 2010 (being the last Business Day prior to the date of this announcement), representing a premium of approximately 39 per cent. to the average Closing Price of 527 pence per VT Share for the one month trading period to 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT); and o pence per VT Share, based on the latest Closing Price of pence per Babcock Share on 22 March 2010 (being the last Business Day prior to the date of this announcement), representing a premium of approximately 45 per cent. to VT s Closing Price of 508 pence on 12 February 2010 (being the last Business Day prior to the announcement by Babcock of a possible offer for VT). Under the terms of the Acquisition, VT Shareholders will not receive any VT final dividend in respect of the financial year ending 31 March The Consideration Shares to be issued pursuant to the Acquisition will not carry any entitlement to any final dividend or second interim dividend of Babcock declared, made or paid in respect of the financial year ending 31 March If the Scheme becomes Effective, it will result in the issue of approximately million Consideration Shares to VT Shareholders (based on the current number of VT Shares in issue, but excluding shares to be issued under the VT Share Schemes), which would result in VT Shareholders holding approximately 36 per cent. of the Combined Group. Appropriate proposals will be made in due course to participants in the VT Share Schemes. Details of the proposals will be set out in the Scheme Document and in separate letters to be sent to participants in the VT Share Schemes. 3. Mix and Match Facility Under the terms of the Acquisition, VT Shareholders may elect to vary the proportions of New Babcock Shares and cash consideration they receive in respect of their holdings of VT Shares, via a Mix and Match Facility, subject to equal and opposite elections made by other VT Shareholders. To the extent that elections cannot be satisfied in full, they will be scaled down on a pro rata basis. As a result, VT Shareholders who make an election under the Mix and Match Facility will not know the exact number of New Babcock Shares or amount of cash they will receive until settlement of the consideration under the Acquisition. Elections under the Mix and Match Facility will not affect the entitlements of those VT Shareholders who do not make any such elections or result in Babcock issuing additional Consideration Shares. Further information on the Mix and Match Facility will be included in the Scheme Document. 4. Recommendations

11 The VT Directors, who have been so advised by Rothschild, consider the terms of the Acquisition to be fair and reasonable. In providing advice to the VT Directors, Rothschild has taken into account the VT Directors' commercial assessment of the Acquisition. The VT Directors intend to recommend unanimously that VT Shareholders vote in favour of the resolutions to be proposed at the VT General Meeting and the Scheme Meeting, as the VT Directors have irrevocably undertaken to do in respect of their own beneficial holdings of 436,148 VT Shares in aggregate, representing approximately 0.2 per cent. of the issued ordinary share capital of VT. The Babcock Directors, who have received financial advice from J.P. Morgan Cazenove and Evercore Partners, consider the terms of the Acquisition to be fair and reasonable. In providing advice to the Babcock Directors, J.P. Morgan Cazenove and Evercore Partners have relied upon the Babcock Directors commercial assessment of the Acquisition. The Babcock Directors intend to recommend unanimously that Babcock Shareholders vote in favour of the resolutions to approve and implement the Acquisition, as the Babcock Directors intend to do in respect of their own beneficial holdings of 1,040,171 Babcock Shares in aggregate, representing approximately 0.5 per cent. of the issued ordinary share capital of Babcock. 5. Background to, and reasons for, the Acquisition Babcock has successfully delivered on its strategic objective of being a leading engineering support services company in the UK and selected overseas markets. The Babcock Board believes the Acquisition supports this strategy and that the combination of VT and Babcock brings together two highly complementary businesses with increased scale and capabilities in their core markets which will deliver significant benefits for customers and shareholders. The Combined Group will offer complementary skills across a wider range of customers and the ability to offer a broader range of solutions. In addition, the Babcock Board believes the Combined Group will be better positioned to build upon business opportunities and provide cost efficient solutions for its customers. As a result, a combination will expand the size of the Combined Group's addressable markets, which will in turn be better placed to deliver against increasing customer demand for large and complex contracts. Specifically, the Combined Group will have the following strengths across its core activities: Defence o Breadth and depth across the MoD; o An extremely broad and deep capability in UK Air, Land and Sea; o Four main support areas: infrastructure, equipment support, training and communications; and o Combined strength to win larger, more complex contracts:

12 the increased scale and enhanced capability of the Combined Group will enable it to take on a broader range of larger, more complex support contracts and increase its work share. Nuclear o A strong nuclear business with significant consultancy positions along with presence at tiers one, two and three; o Approximately 3,000 employees servicing defence and civil nuclear sectors; o Opportunity to build upon VT s strong customer relationship with Sellafield; and o Ability to cross sell VT's training and education expertise to Babcock s nuclear customers. Critical Infrastructure o Strong civil business in government and regulated industries; o Well positioned to use enhanced range of skills and expertise to deliver broader range of customer solutions; o Opportunity to develop strong training and education business in a fragmented civil market; and o Main support areas of infrastructure, equipment support, education and training and communications. International o Well positioned to use the Combined Group s enhanced range of skills and expertise to deliver a broader range of customer solutions in our existing International markets (USA, Canada, Australia, South Africa, Middle East and Eastern Europe): Opportunities to sell complementary capabilities where the Combined Group has an established presence; and Build on Babcock's and VT s excellent reputation for customer service, delivery and cost reduction. Babcock has a long and successful track record of integrating acquisitions and delivering synergies for the benefit of shareholders and cost savings for the benefit of customers. In addition to the improved growth prospects of the Combined Group, the Babcock Directors believe the Acquisition will deliver merger benefits throughout the Combined Group, prior to any one-off expenses, of approximately 50 million per annum (pre-tax). It is expected that these merger benefits will be fully realised for the period ending 31 March 2013, with 30 million expected to be achieved in the financial year ended 31

13 March It is also expected that there will be financial efficiencies of a further 8 million per annum (post tax). 2 The one-off expenses involved in obtaining such synergies are anticipated to be approximately 45 million, all of which are expected to be incurred by the end of the second full financial year following completion of the Acquisition. These synergies are expected to be predominantly based on the realisation of significant cost savings through the elimination of duplicated functions. These may include the sharing of resources between businesses, business reorganisations, rationalisation of the Combined Group s property portfolio, eliminating duplicate management teams at head and regional offices and associated overheads, and procurement savings. In addition, Babcock expects to achieve revenue synergies through an enhanced customer product and service offering. Through a rapid but considered integration, as well as the mutual exchange of best practice in all functions, regions and market segments, the Combined Group will seek to maximise value opportunities for shareholders, customers and employees. The Babcock Board believes that the Acquisition will further enhance its proven capability to execute a profitable growth strategy and is expected to be accretive in terms of earnings per share in the first full financial year following completion of the Acquisition Background to and reasons for the VT Board recommendation Over the past five years, VT s strategy has been to build on its core engineering skill base and to develop into a broad based support services business. The strategy has been highly successful and VT s transformation into a pure support services business was completed in October 2009 with the sale of its shareholding in the BVT joint venture with BAE Systems for gross proceeds of 299 million. VT has delivered material value to its shareholders over the past five years. The VT Board remains highly confident in the prospects for VT as a standalone business, supported by a very strong balance sheet, and that the rationale for its strategy of broadening its customer base and support services offering remains strong. The VT Board believes however that, although VT has the opportunity to continue to develop under the present ownership structure, there is compelling financial logic for VT Shareholders to a combination of VT and Babcock on the terms of the Acquisition and that, together, the two businesses should be able to take advantage of the trend for contracts of increasing complexity and scale. The VT Board believes Babcock s offer delivers an attractive opportunity for VT Shareholders to benefit from (i) the immediate 2 These amounts include the previously announced merger benefits of approximately 27 million per annum (pre-tax), and the further benefit of approximately 6 million per annum expected to come from a reduction in the effective corporation tax rate of the Combined Group, each as previously announced by Babcock on 15 February Nothing in this announcement should be interpreted to mean that the future earnings per share of Babcock will necessarily match or exceed the historical earnings per share of Babcock or VT. 3 Nothing in this announcement should be interpreted to mean that the future earnings per share of Babcock will necessarily match or exceed the historical earnings per share of Babcock or VT.

14 premium implicit in Babcock s offer, and (ii) the potential upside to the value of the Combined Group, including through the realisation of revenue and cost synergies. 7. Information relating to Babcock Babcock is a leading engineering support services company operating in the defence, nuclear, power generation and transmission markets. Its customers are mainly government departments or blue chip companies operating in highly regulated markets, who own or operate strategically important assets requiring long-term maintenance and upgrade. Babcock employs approximately 17,000 skilled people in the UK, Africa, North America and Australia across six divisions: Marine: Babcock has a leading naval support business with a critical role supporting the Royal Navy and the MoD. Key activities include base porting, refitting, refuelling and decommissioning submarines, maintaining and refitting warships, building the next generation aircraft carriers, managing naval bases and providing equipment support on behalf of the UK Government. Babcock recently formed a new business unit within its Marine division to bring together the engineering, design, systems integration and platform management capabilities across the Babcock Group. Integrated Technology is one of the leading organisations of its type in the UK defence sector. Defence: Babcock provides facilities management, equipment support and training expertise to the MoD and civil customers, such as BAA. Key activities include facilities management for the MoD through two regional prime contracts, technical support to the Royal Air Force through multi-activity and Integrated Operation Support contracts, training to the Royal School of Military Engineers and support for baggage handling systems at London Heathrow. Nuclear: Babcock is one of the UK s largest nuclear engineering support services businesses with an operational Tier 1 position in the civil nuclear market and a direct relationship with the Nuclear Decommissioning Authority, complementing Babcock's Tier 1 position in the military nuclear market. The division provides, through its Tier 2 and 3 positions, outage and maintenance support for current power generation and operation in the decommissioning and waste management markets. Key activities include outage support for operational reactors, decommissioning activities, waste management solutions and safety and risk analysis. Networks:

15 Babcock operates in the high voltage power transmission, mobile and fixed telecommunications and digital broadcast infrastructure markets in the UK. Key activities include high voltage power transmission maintenance and upgrade, digital switchover antenna design and replacement, mobile telecommunications network upgrade and fixed line communications networks and next generation networks. Rail: Babcock is one of the UK s largest track renewals contractors and a major player in the rail infrastructure market. Key activities include traditional track renewal; signalling and control system installation and the provision of rail power solutions. Engineering and Plant: Operating mainly in South Africa, the division supports Eskom, the national power supplier, and operates the Volvo franchise for construction equipment. Key activities include maintenance and engineering support on power station boilers, construction, erection and maintenance of high voltage power lines and being the sole distributor of Volvo equipment to mining and infrastructure companies. By combining a diverse range of services and capabilities, Babcock is able to offer fully integrated technical and engineering solutions to satisfy several different markets. 8. Information relating to VT VT is a leading international support services group, which generated sales of approximately 1.1 billion in the year ended 31 March 2009 (68 per cent. in the UK and 28 per cent. in North America), has an order book in excess of 4 billion and employs over 16,000 people. In May 2009, VT undertook an internal reorganisation to increase its operational efficiency, to improve its relationships with key strategic customers, and to create opportunities for adding complementary work streams to its current activities. Following this successful reorganisation, VT operates through three divisions: Defence, Government & Critical Services and VT Group Inc.: Division 2009 sales Activities Defence 428 m Manages VT s activities in support of UK and non-us defence customers Government & Critical Services 376 m Manages all civil contracts, including those in the training, education, environment, emergency services, and broadcasting and security sectors VT Group Inc. 303 m Manages VT s US activities, including its

16 relationships with the Department of Defense and NASA 9. Financing of the Combined Group The cash consideration payable to VT Shareholders under the terms of the Acquisition will be provided from new debt facilities. Babcock has today entered into a bridge facility of up to 400,000,000 and backstop facilities of up to 600,000,000, each arranged by J.P. Morgan plc and Lloyds TSB Bank plc. Under the terms of the new debt facilities, Babcock has agreed that it will not (unless it is required by the Panel or by applicable law) amend, waive or modify the Conditions set out in paragraphs 4(a), (c) and (d) of Appendix 1 without the consent of the mandated lead arrangers under the bridge facility, and without the consent of lenders whose commitments represent in aggregate more than 50 per cent. of the total commitments under the backstop facilities. In addition, Babcock has agreed that it will not waive or amend any other Condition in any material respect, where to do so could reasonably be expected to materially prejudice the interests of the lenders under the bridge facility and the backstop facilities, without the consent of the majority lenders under the bridge facility and the backstop facilities. J.P. Morgan Cazenove and Evercore Partners, joint financial advisers to Babcock, are satisfied that sufficient resources are available to Babcock to satisfy in full the cash consideration payable to VT Shareholders under the terms of the Acquisition. The Babcock Board believes it has a prudent capital structure consistent with the long term nature of many of its revenue streams and that Babcock will continue to be a highly cash generative business. Babcock expects its net debt to EBITDA ratio to be approximately 2.9 times at the time of completion of the Acquisition. 10. Babcock current trading, trends and prospects The Babcock Board believes that the financial year ending 31 March 2010 will prove to have been another excellent year of progress for Babcock. Trading in the second half of the year has remained resilient, with no significant changes to market conditions and remains in line with the expectations outlined by Babcock in its Interim Management Statement released on 2 February Babcock continues to benefit from the long-term nature of its contracts, the critical nature of the engineering support it provides and the strong relationships it has with its customers. All of Babcock's major support contracts are performing well, with no significant changes to the levels of work coming through to Babcock's operating divisions.

17 Babcock believes that its strong market positions, as well as its track record of delivering efficiencies for customers, make it well placed to benefit from the economic pressures which are likely to continue to increase for its customers. Babcock is confident that the long-term growth prospects for the Babcock Group s principal markets remain strong, supported by the strength of its order book and bid pipeline, and in the financial year ending 31 March 2011 Babcock expects to build further on the excellent progress it has made in previous years. 11. VT current trading, trends and prospects Since 28 January 2010, being the date of its last Interim Management Statement, VT has continued to perform in line with the VT Board s expectations. The VT Board remains confident in the long-term prospects for VT s businesses. 12. Dividend policy Following completion of the Acquisition, it is the intention of the Babcock Directors to maintain a progressive dividend policy having regard to the availability of distributable reserves and cash, and taking into account the Combined Group's working capital and investment requirements. 13. Management, employees and locations Babcock has agreed that, upon completion of the Acquisition, the existing employment rights of all VT Group employees will be fully respected. In addition, Babcock has agreed that upon completion of the Acquisition, the existing pension rights of all the VT Group employees will be observed at least to the extent required by the applicable law and that it will not make any changes to the pension schemes that will adversely affect future service pension benefits provided to the VT Group employees for a period of at least 18 months from the date of this announcement. Following completion of the Acquisition, VT Shares will cease to be listed and the VT Share Schemes will therefore be withdrawn and VT employees will thereafter participate in the Babcock employee share schemes, as appropriate. Babcock's plans for VT do not otherwise involve any material change in the conditions of employment of VT employees. Combining two substantial groups often provides opportunities for the combined group to realise significant cost savings through the elimination of duplicated functions. These may include the sharing of resources between businesses, business reorganisations and rationalisation of the combined group s property portfolio. In assessing the terms of the Acquisition, Babcock has made certain assumptions in relation to such savings, for example, in divisional and group head offices, centralised functions and data centres. The precise scope for realising any such cost savings in the context of the Combined Group, as well as the timings and manner of implementation, will be determined by Babcock following completion of the Acquisition. Achieving any such cost savings is likely to lead to a number of job losses and office closures (or relocations) in some parts of the Combined Group. However, the Babcock Board believes that for the overwhelming majority of the Combined Group's employees the combination of Babcock and VT will be to their advantage, offering the opportunity of continued employment in a larger

18 group, with the anticipated benefits the Babcock Board expects the combination to bring (as described further in paragraph 5 above). Babcock has agreed in the Implementation Agreement (described further at paragraph 20 below) that where cost savings lead to job losses, it will ensure that employees of the VT Group in the United Kingdom and the United States who are made redundant as a consequence of the Acquisition within 24 months from the date of this announcement will be treated at least as favourably as they would be under the practices adopted by VT when implementing other recent redundancies. 14. Employee Share Schemes The Acquisition will extend to any VT Shares unconditionally allotted or issued prior to the Reorganisation Record Time, including shares issued pursuant to the exercise of options granted under the VT Share Schemes. Appropriate proposals will be made in due course to participants in the VT Share Schemes. Details of the proposals will be set out in the Scheme Document and in separate letters to be sent to participants in the VT Share Schemes. 15. Scheme of Arrangement It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement between VT and its shareholders under Part 26 of the 2006 Act. The Scheme will involve an application by VT to the Court to sanction the Scheme and to confirm the cancellation of all the Scheme Shares, in consideration for which Scheme Shareholders will receive consideration in accordance with the terms of the Acquisition. It is also intended as part of the Scheme to effect the Capital Reduction. The Scheme will be subject to the Conditions and certain further terms referred to in paragraph 16 of, and at Appendix 1 to, this announcement, and to be included in the Scheme Document. In particular, to become Effective, the Scheme requires the approval of Scheme Shareholders by the passing of a resolution at the Scheme Meeting. The resolution must be approved by a majority in number present and voting at the Scheme Meeting, either in person or by proxy, representing not less than 75 per cent. in value of the Scheme Shares which are voted at the Scheme Meeting (or any adjournment thereof). In addition, to become Effective, the Scheme also requires the passing at the VT General Meeting of certain resolutions which are necessary to implement the Scheme. These resolutions are in respect of, among others: the cancellation of any existing VT Shares and the approval of the issue of new ordinary shares in VT to Babcock (and/or its nominee(s)) in accordance with the Scheme; and the amendment of VT's articles of association to ensure that the VT Shares issued under the VT Share Schemes will be subject to the Scheme or, if issued following the Reorganisation Record Time, will be automatically transferred to Babcock on the same terms as under the Scheme.

19 These resolutions require the approval of VT Shareholders representing at least 75 per cent. of the votes cast (either in person or by proxy), at the VT General Meeting which will be held immediately after the Scheme Meeting. Following the Scheme Meeting and the VT General Meeting, the Scheme must be sanctioned and the Capital Reduction confirmed by the Court, and will only become effective on delivery to the Registrar of Companies of: a copy of the First Court Order; and a copy of the Second Court Order, and, in the case of the Second Court Order, if the Court so orders for the Scheme to become Effective, it being registered by the Registrar of Companies together with the statement of capital attached to it. Upon the Scheme becoming Effective, it will be binding on all Scheme Shareholders, irrespective of whether or not they attended or voted at the Scheme Meeting or the VT General Meeting. The Scheme Document will include full details of the Scheme, together with notices of the Scheme Meeting and the VT General Meeting and the expected timetable, and will specify the action to be taken by Scheme Shareholders. Babcock reserves the right to decide to implement the Acquisition by way of an Offer for the entire issued and to be issued share capital of VT not already held by Babcock. VT has agreed that, in the event that the Acquisition is implemented by way of an Offer, the offer document will contain the recommendation of the VT Directors, on a unanimous and unqualified basis, to VT Shareholders to accept the offer, except to the extent that the VT Directors have determined in good faith that such recommendation should be modified due to the requirements of Rule 3.1 of the Takeover Code to make the substance of any independent advice known to VT Shareholders and noting that the VT Directors retain the right to withdraw such recommendation in certain circumstances. 16. Conditions to the Scheme becoming Effective In addition to the Scheme conditions described in paragraph 15, the Acquisition will be subject to the satisfaction of additional conditions and certain further terms. The Acquisition will be conditional upon the approval of the Babcock Resolution by Babcock Shareholders at the Babcock General Meeting and the Admission of the New Babcock Shares to trading on the London Stock Exchange and to listing on the Official List. Further information on the Babcock General Meeting is provided below at paragraph 18. In addition, the Scheme will be subject to the satisfaction of certain anti-trust and regulatory conditions, including, amongst other things:

20 the OFT deciding not to refer the Acquisition to the UK Competition Commission and the Secretary of State for Business, Innovation and Skills not having giving an intervention notice to the OFT in respect of the Acquisition; the CFIUS having given written notice to Babcock that it had completed its review of the Acquisition under applicable regulations without the President of the United States invoking his authority to block the Acquisition; and the waiting periods under the United States Hart Scott Rodino Antitrust Improvements Act of 1976, and the regulations made thereunder in respect of the Acquisition, having expired or been terminated. 17. VT delisting, cancellation of trading and re-registration It is intended that the London Stock Exchange will be requested to cancel trading in VT Shares on the London Stock Exchange's main market for listed securities and the UKLA will be requested to cancel the listing of the VT Shares from the Official List on the Effective Date. Further, it is intended that, VT will be re-registered as a private limited company immediately upon the Scheme becoming Effective. If the Acquisition is effected by way of an Offer, it is anticipated that the cancellation of VT's listing and admission to trading will take effect no earlier than 20 Business Days after the date on which the Offer becomes or is declared unconditional in all respects. Delisting would significantly reduce the liquidity and marketability of any VT Shares not assented to the Offer at that time. If the Acquisition is effected by way of an Offer and such Offer becomes or is declared unconditional in all respects and sufficient acceptances are received, Babcock intends to exercise its rights to acquire compulsorily the remaining VT Shares in respect of which the offer has not been accepted under Chapter 3 Part 28 of the 2006 Act. 18. Babcock shareholder approval and Prospectus In view of the size of the Acquisition and in order to implement it, it will be necessary for the Babcock Shareholders to approve the Acquisition and the allotment of the Consideration Shares. A general meeting will be convened for this purpose. The Babcock Circular convening the general meeting will be sent to Babcock Shareholders in due course. The Babcock Resolution set out on the Babcock Circular will require the approval of the Babcock Shareholders representing more than 50 per cent. of the votes cast at the Babcock General Meeting (either in person or by proxy).