Babcock International will today be transformed into a £2.5 billion player in the defence services industry through its £1.3 billion takeover of rival VT Group.
It is understood that VT will today recommend the offer from London-based Babcock, which values its shares at 735p.
The deal follows seven weeks of attempts by Babcock to persuade VTÔÇÖs board to accept its bid. Its initial offer was rejected in February, with talks only commencing when Babcock upped its price.
It is understood that VT shareholders were keen for the deal to go ahead, as many of them also own shares in Babcock.
If the acquisition goes ahead this summer, the new company will be big enough to enter the FTSE 100. The combined group will also be one of the UKÔÇÖs largest support services groups, with skills in defence, nuclear and critical infrastructure.
Southampton-based VT sold its shipbuilding interests to BAE Systems last year to focus solely on the support services sector. It also has training contracts with the military, Government and local authorities.
Through the merger, Babcock, which is best known for its maintenance of the UK's submarine fleet, will gain VTÔÇÖs lucrative Ministry of Defence contracts servicing the RAF, which will complement its existing Royal Navy interests at Devonport and Rosyth.
The deal will also enable Babcock expand it into new areas, including building schools and servicing police vehicles.
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.
ÔÇ£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".
Mike Jeffries, chairman of VT added: "The VT Board believes that BabcockÔÇÖs 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".
In its original proposal, Babcock said a combined group would be better placed to lead in bids and deliver increased services and efficiencies to its clients.
It also said it had identified merger benefits of around £27 million per year. However, it is understood that following further analysis, that figure could be as high as £50 million.
