THE ill-tempered takeover battle between Hampshire’s VT Group and rival Babcock turned “increasingly hostile”

last night as a second, improved £1.2 billion offer was firmly rejected.

It is the second rejection of the week after VT said on Monday it had turned down a proposal worth £1.1 billion from Babcock, branding it “totally unacceptable”.

Yesterday, the board of the Botley-based former shipbuilder turned support services specialist, unanimously rejected Babcock again, describing a merger as a “retrograde step”.

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VT issued a comprehensive rebuttal of the logic behind the deal, attacking it as “strategically unsound” and warning “the transaction would put further strain on Babcock’s already leveraged balance sheet, which also remains exposed to pension liabilities of over £2 billion and a current net deficit of £287m.

“The board of VT considers that the company will produce higher growth and better returns for shareholders as an independent business,” they added.

Because of Babcock’s defence services heavy portfolio, a deal would undermine VT’s efforts to reduce its reliance on the sector – culminating in the sale of its shipbuilding assets for £346m to BAE Systems last year – which faces deep Government cuts.

Paul Lester, VT’s £1m-a-year chief executive, instead wants to press ahead with takeover plans of his own – using a £500m war chest partly generated from the sale of the shipbuilding business, to buy local government outsourcing rival Mouchel for £330m.

Undeterred, Babcock which employs around 17,000 people worldwide and generated revenues of almost £2 billion last year, was last night talking to VT shareholders about its offer of between 680p and 715p a share.

Babcock, which ironically four years ago was itself a takeover target for VT and Base Systems, said it was “disappointed”

at the rejection from VT.

Reports that Lockheed Martin, the giant US defence group, could be lined up as a so-called “white knight” bidder for VT in its attempt to see off the unwanted advances of Babcock, are as yet unfounded.

Investment bank Panmure Gordon said: “This now looks increasingly hostile, with Babcock likely to go straight to VT shareholders with its much speculated revised offer. We still believe this is inadequate.”