Wednesday, June 11, 2008



VT Group plc (VT) is pleased to announce that it has today signed a final legally binding agreement with BAE Systems plc (BAE Systems) on the formation of a surface shipbuilding and naval support joint venture company to be called BVT Surface Fleet Limited (BVT).

The agreement also includes VT’s acquisition of BAE Systems’ 50 per cent. shareholding in Flagship Training Limited (together with the formation of BVT, the Transactions). The terms of the Transactions are substantially unchanged from those set out in the announcement by VT on 25 July 2007. The principal terms of the agreement are:

• BVT will combine VT’s and BAE Systems’ respective surface warship and through-life naval support businesses, including their respective 50 per cent. stakes in Fleet Support Limited.

• BVT will be owned 45 per cent. by VT and 55 per cent. by BAE Systems.

• VT and BAE Systems will have equal board representation and voting rights in BVT.

• BVT’s dividend policy will be to distribute all of its earnings and VT will receive priority receipt of BVT’s dividends up to March 2010.

• BAE Systems has agreed to provide all further funding requirements of BVT up to an agreed limit.

• Put and call options will be granted as previously announced on 25th July 2007 with a minimum exit price for VT’s interest in BVT of £380 million (subject to certain adjustments).

• On completion of the formation of BVT, VT will acquire from BAE Systems the remaining 50 per cent. of Flagship Training Limited that it does not already own for £65 million (plus interest), payable in three years. A further £10 million will be paid by VT or repaid to VT depending on the performance of the business.

The formation of BVT will be the prelude to a full manufacturing contract for the aircraft carrier (CVF) programme, which will be signed by the UK Ministry of Defence (MoD) and BVT shortly. BVT will also sign a 15 year partnering arrangement with the MoD. This arrangement will guarantee BVT’s leadership of defined future programmes with respect to design, build and through-life support. BVT will operate facilities in Bristol, Glasgow and Portsmouth.

VT and BAE Systems have appointed Sir John Parker as the non-executive Chairman designate and Alan Johnston as Chief Executive designate of BVT. Sir John is also non-executive Chairman of National Grid plc and Mr Johnston was previously Managing Director at AgustaWestland. Both have a wealth of experience in the naval industry and are looking forward to creating a world class business to work in partnership with the Royal Navy and other navies around the world.

VT believes that the Transactions will enable its shareholders to benefit from enhanced visibility of cash dividends from its shipbuilding and naval support businesses. The Transactions also provide VT with the financial flexibility to continue to pursue value enhancing acquisitions which are complementary to VT's support services operations.

The Transactions taken together are expected to be broadly neutral to VT's earnings per share (prior to amortisation, reorganisation costs and fair value adjustments arising from the Transactions)(1).

The Transactions remain conditional on, inter alia, the approval of VT’s shareholders, and no material adverse change having occurred. Regulatory approval has already been obtained from the United States Department of State and the EU.

The approval of VT’s shareholders is to be sought at an Extraordinary General Meeting on June 30 2008. A circular with full details of the Transactions will be sent to VT’s shareholders as soon as possible. The Transactions are expected to complete by the end of June 2008, enabling BVT to start operations on July 1, 2008.

VT Group Chief Executive Paul Lester commented: “The formation of BVT will create a world class provider of naval ships and through-life support that will secure thousands of jobs in the UK and will enable the company to compete effectively for export work.

“Placing our shipbuilding and naval support businesses in a large JV is a major strategic move that will allow us to focus more time on growing our engineering-based support services businesses.

“Securing full ownership of Flagship Training is another important step in this process as we become a major support services organisation.”


• BVT will comprise VT’s surface warship building and naval through-life support operations; each of VT’s and BAE Systems’ 50 per cent. shareholdings in their existing surface warship through-life support joint venture, Fleet Support Limited; and BAE Systems’ Surface Fleet Solutions operations, which includes surface warship building and through-life support businesses.
• BVT will employ over 7,000 people and will have a turnover approaching £1bn per annum.
• Flagship Training Ltd was formed in 1996 when a contract was signed with the UK Ministry of Defence for a partnership with the Royal Navy. Today, Flagship delivers a wide range of capabilities, including training technology solutions, support services, facilities management and construction services.

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