Babcock is already the UK’s leading naval support business.

Defence services group Babcock has bought out its smaller rival VT Group for a reported £1.3 billion, in a move which it says will see the combined company create a formidable force across the defence and nuclear sectors.

Both companies specialise in providing support services in the UK and overseas, with governments as their biggest customers.

Rumours of a takeover have been rife since early February as Babcock announced a possible offer for VT.

Commenting on the announcement, 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.”

“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,” commented Chairman of VT, Mike Jeffries.

Both Chairmen agree that the enlarged business, encompassing VT, will bring many benefits to customers, and Babcock anticipates merger benefits of around £50m per year, as well as cost-savings of a further £8m per year.

The takeover will also hope to secure the future for both companies, as they enjoy a combined order book of approximately £10bn of long-term contracts.

Under the terms of the acquisition VT Shareholders will not receive any VT final dividend in respect of the financial year to 31 March 2010. They will own 36% of the combined group, however, and have access to the future growth prospects of the Combined group.