LONDON (Reuters) - British defense services company VT Group (VTG.L) will focus on fighting a takeover bid from Babcock International (BAB.L), after walking away from bidding for smaller service sector rival Mouchel (MCHL.L).
"Dropping the Mouchel approach allows us to concentrate all of our efforts on defending the Babcock bid," a VT spokesman told Reuters on Thursday.
"We still think combining with Mouchel would be a good strategic move and we could come back for them in six months depending on what happens between now and then."
VT shares were 0.6 percent up at 679.5 pence by 1025 GMT, while Babcock"s shares were 2.9 percent lower at 520 pence, and Mouchel was down 5.2 percent to 202.2 pence.
"I wasn"t expecting VT to pursue a bid for Mouchel and I think it"s all about price now (between VT and Babcock)," Angela Lascelles, joint managing director at OLIM Ltd, which holds 1.49 percent of VT shares, told Reuters.
"Shareholders seem to be looking for at least 750 pence and I think (VT chief executive Paul Lester"s) attitude is if it is the right price he will accept it. That is my interpretation."
VT"s decision to drop its interest in British infrastructure group Mouchel came ahead of a March. 8 deadline set by Britain"s Takeover Panel for VT to make a formal bid.
VT, once a naval shipbuilder and now a support services company, had previously raised a bid for Mouchel, boosting hopes it would clinch a 330 million pound ($497 million) deal to diversify beyond the defense industry.
But VT then found itself the target of rival defense support services group Babcock with a tentative cash-and-shares offer valuing it at up to 1.29 billion pounds, or 715 pence per share.
VT rejected the Babcock approach, saying it "significantly undervalued" the company, and set its sights on an 800 pence offer, a source familiar with the company"s thinking said last month.
Several of VT"s leading investors want the company to open formal offer talks with Babcock, which maintains the Royal Navy"s submarines. Babcock has said any deal would be subject to VT withdrawing its approach for Mouchel.
VT"s third-largest shareholder, Scottish Widows Investment Partnership, recently said "significant shareholder value could be created" by a merger of the two businesses.
Analysts and shareholders believe somewhere in a 725-775 pence a share could be enough to seal a deal.
"VT has done the right thing because it would have been tough to fight a battle on two fronts," said Panmure analyst Mike Allen, adding: "The ball is firmly in Babcock"s court now and it will probably have to raise its offer to see VT"s books."
(Additional reporting by Kate Holton; Editing by Greg Mahlich and Dan Lalor)
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