Takeover bid puts future in doubt for Vickers Defence

Doubts surrounded the future of Vickers Defence Systems (VDS) this week following Rolls-Royce’s £575m bid for the Vickers group. While the Vickers marine and components divisions are seen as a good fit with Rolls-Royce’s operations, there are doubts as to where VDS would fit in. One analyst said he could not see any sense in […]

Doubts surrounded the future of Vickers Defence Systems (VDS) this week following Rolls-Royce’s £575m bid for the Vickers group.

While the Vickers marine and components divisions are seen as a good fit with Rolls-Royce’s operations, there are doubts as to where VDS would fit in. One analyst said he could not see any sense in Rolls-Royce retaining VDS `for a second longer’ than it had to.

Vickers says that after its recent streamlining, VDS is in its strongest position for a number of years. Vickers’ recent take-over of South Africa’s Reumech and its strategic partnership with the Swiss armoured vehicle firm Mowag (now part of GM Canada) has raised the company’s profile. But the announcement could destabilise export deals with orders for tanks for Greece, South Africa and Qatar in the pipeline.

One defence industry observer said: `The Rolls bid couldn’t have been put in at a worse time, just as the City was sitting up and taking notice of Vickers’ recovery.’

If Rolls-Royce does sell VDS, possible buyers are the UK’s Alvis armoured vehicle group, although there are doubts as to whether it would want another tank factory. Other bidders might include the Carlyle investment group or German defence firm Rheinmetall.

Neither Vickers nor Rolls-Royce would clarify what might happen to VDS beyond saying that the company `is well placed to take advantage of industry consolidation’.

The `relaunch’ of VDS, combined with the Rolls-Royce bid, saw Vickers’ share price bounce back to 246p on Tuesday at a 53% premium on the 17 September closing price.

`This is an extremely good deal for shareholders, given the strengths of the marine business,’ Vickers said.

* Vickers’ history, p2