Acquisition

Babcock International Group PLC
10 May 2007

This announcement is not for release, publication or distribution, directly or
indirectly, in or into the United States, Canada, South Africa, Australia, Japan
or any jurisdiction in which the same would be unlawful.  This announcement is
not an offer of securities in the United States, Canada, South Africa,
Australia, Japan or any jurisdiction in which the same would be unlawful.

Babcock International Group PLC
10 May 2007

          Babcock International Group PLC ('Babcock' or the 'Company')


                  Acquisition of Devonport Management Limited






The board of directors of Babcock (the 'Board') today announces that Babcock has
entered into an agreement (the 'Acquisition Agreement') for the acquisition of
Devonport Management Limited ('DML') (the 'Acquisition') for £350 million.



DML has unique capabilities for the support of nuclear submarines and surface
vessels for the Royal Navy. The combination of DML with Babcock's existing
businesses will create the UK's leading provider of refit and maintenance
services to the Royal Navy's surface ship and submarine fleets.



The operations, the principal customer and the technologies of DML are very
familiar to Babcock and the Board believes that there are significant strategic
and financial benefits to be gained from the acquisition of DML in terms of
scale, product offering and position in these markets. These operational
synergies are expected to make the Acquisition significantly earnings enhancing
in the first full financial year of ownership.



Specifically, the Board expects that the Acquisition will:



•       position Babcock as the leading supplier of support services to the UK
submarine fleet

•       result in Babcock becoming the leading supplier of support to surface
warships of the Royal Navy

•       deliver significant operational and financial synergies

•       increase the nuclear engineering and support resources expertise within
Babcock



The consideration for the Acquisition of £350 million, which will be paid in
cash on completion, will be satisfied through a combination of committed new
bank debt facilities and the proceeds of a fully underwritten placing of new
ordinary shares to raise approximately £90 million (announced separately today)
(the 'Placing').  The Placing is not conditional on the Acquisition completing.



The Acquisition will be subject to the approval of Babcock's shareholders at an
extraordinary general meeting to be held as soon as practicable and certain
consents required by the selling shareholders from the MoD.



Babcock has today also announced its preliminary results for the year ended 31
March 2007, demonstrating another year of progress and the fifth year of double
digit earnings growth.



Peter Rogers, Chief Executive of Babcock, commented:



'This transaction strengthens Babcock's position as a leading support services
group and a major supplier of services to the UK's armed forces.  We believe the
combined strength of Babcock and DML will yield significant strategic and
financial benefits to the Ministry of Defence in line with the objectives set
out in the Defence Industrial Strategy, whilst creating significant value for
Babcock's shareholders.'



An analysts meeting to discuss the Acquisition and preliminary results will be
held at 9 am today at the offices of Financial Dynamics, Holborn Gate, 26
Southampton Buildings, London WC2A 1PB.



ENQUIRIES:


Babcock                                                    Tel:            [phone]
Peter Rogers, Chief Executive
Bill Tame, Finance Director

JPMorgan Cazenove                                          Tel:            [phone]
(Financial advisers, sponsor & broker to Babcock)
Dermot McKechnie
Andrew Truscott

Financial Dynamics                                         Tel:            [phone]
(PR for Babcock)
Andrew Lorenz
Richard Mountain






JPMorgan Cazenove Limited ('JPMorgan Cazenove'), which is authorised and
regulated in the United Kingdom by the Financial Services Authority, is acting
exclusively as financial adviser, sponsor and corporate broker for Babcock and
no one else in connection with the Acquisition and will not be responsible to
anyone other than Babcock for providing the protections afforded to its clients
or for providing advice in relation to the Acquisition or in relation to the
contents of this announcement, or for any other transaction, arrangement or
matters referred to in this announcement.



Certain statements in this announcement are forward-looking statements.  Such
statements speak only as at the date of this announcement, are based on current
expectations and beliefs and, by their nature, are subject to a number of known
and unknown risks and uncertainties that could cause actual results and
performance to differ materially from any expected future results or performance
expressed or implied by the forward-looking statement.  The information
contained in this announcement is subject to change without notice and neither
Babcock nor JPMorgan Cazenove assumes any responsibility or obligation to update
publicly or review any of the forward-looking statements contained herein.



No statement in this announcement is or is intended to be a profit forecast or
to imply that the earnings of Babcock for the current or future financial years
will necessarily match or exceed the historical or published earnings of
Babcock.



The ordinary shares referred to in this announcement have not been, and will not
be, registered under the U.S. Securities Act of 1933, as amended or under the
securities laws of any state of the United States and may not be offered, sold
or transferred, directly or indirectly, within the United States except pursuant
to an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. This
announcement does not constitute an offer to sell or the solicitation of an
offer to buy, nor shall there be any sale of, the ordinary shares in any state
in which such offer, solicitation or sale would be unlawful.  The ordinary
shares have not been, and will not be, registered with any regulatory authority
of any state within the United States. No money, securities or other
consideration is being solicited and, if sent in response to the information
herein, will not be accepted.



                         Babcock International Group PLC


                  Acquisition of Devonport Management Limited



1.            Introduction



The Board today announces that Babcock has entered into an Acquisition Agreement
for the acquisition of DML for £350 million in cash.  DML, with its unique
facilities, plays a key role in the through life support of nuclear submarines
and surface vessels for the Royal Navy.



Given its size, the Acquisition will be, amongst other things, subject to the
approval of Babcock's shareholders at an extraordinary general meeting.  A
circular, containing a notice convening this meeting, will be posted as soon as
practicable.



2.            Information on Babcock



Babcock is a focused support services company working with public sector
institutions and private sector customers to supply effective, long term
solutions to support their core operations.  Its largest customer is the MoD.
Babcock is organised into five core business segments covering a range of
commercial activities in the UK and internationally: Defence, Technical,
Engineering & Plant Services, Networks and Rail.  Babcock is based in the United
Kingdom with overseas operations in Africa and North America.



3.            Information on DML



The DML group was established in 1987 to operate the Devonport Royal Dockyard in
Plymouth following the Ministry of Defence's ('MoD') decision to introduce
commercial management into the facility.  In March 1997 the Government decided
to divest itself of the non naval base assets of Devonport, at which point it
was acquired by DML.



DML is currently owned jointly by three shareholders, Kellog Brown and Root
Holdings (U.K.) Ltd (51%), Balfour Beatty PLC (24.5%) and The Weir Group PLC
(24.5%). DML owns 100% of its subsidiaries with the exception of Devonport Royal
Dockyard Ltd, in which the MoD holds a special share.



The trading record of DML for the three financial years ended 31 December 2006
is summarised below.


Year ended 31 December                               2004                  2005                  2006
Continuing Revenue*                                  £408m                 £467m                 £454m
EBITDA*                                              £49m                  £54m                  £64m
EBITA*                                               £32m                  £35m                  £48m
EBITA margin                                         7.8%                  7.5%                  10.5%

* Draft figures prepared under IFRS. EBITDA and EBITA includes the pension
finance credit in accordance with Babcock's accounting policy (2006:£13m; 2005:
£5m; 2004 £6m)



At 31 December 2006 DML had gross assets of £302 million and net assets of £99
million.



DML comprises six business streams:



•       Submarine support activity accounted for some 47% of 2006 revenues and,
as at 31 December 2006, employed 1,119 industrial and 886 non-industrial staff.
DML provides major refit and refuelling services for nuclear submarines to the
Royal Navy.



•       Surface ship support employed 231 staff and accounted for 5% of revenues
in 2006; it provides a refit capability for frigates, major warships, fleet
tankers and survey vessels. DML is a member of the Surface Ship Alliance
alongside Babcock.



•       Activities related to the Warship Support Modernisation Initiative ('
WSMI') accounted for 22% of 2006 revenues and employed some 374 staff.  WSMI
provides in-service operational support to Devonport based ships and submarines
as well as support for naval base operations.   The WSMI contract is due to
expire in September 2007 but the MoD have indicated their intention to extend
the contract for a further 18 months from that date pending agreement of a more
permanent solution.



•       Defence systems generated 11% of 2006 total revenue and provides
technical expertise across five areas; platform management, technical support,
information management, capability insertion and materials supply.



•       Commercial and consultancy activities generated 15% of total 2006
revenues and involves, inter alia, the design and build of super yachts and
engineering and logistics consultancy.





4.            The Defence Industrial Strategy and the Maritime Industrial
Strategy



The Defence Industrial Strategy (the 'DIS'), released in December 2005, provided
the policy foundation for how HM Government wishes to see the reshaping of the
UK defence industrial base evolve.



In particular, the maritime section of the DIS identifies HM Government's key
concerns in relation to both the supply and the through life support of the
Royal Navy's surface and submarine fleets.  The maritime industrial strategy
states that it is essential that the UK retains the capability to deliver,
operate and maintain its nuclear powered submarine platforms onshore.  In
addition it identifies a requirement for consolidation for the construction and
through life support of both the surface ship and submarine fleets.



Babcock has discussed the Acquisition of DML with senior members of the MoD and
the Shareholder Executive and has received assurances that the Acquisition is
consistent with the intentions identified in the DIS and that, subject to
certain consents, the MoD gives its support and will take the necessary steps to
facilitate the completion of the Acquisition.



5.            Further information on the Submarine Support Activities of DML and
Babcock



The Royal Navy operates from three active naval bases in the United Kingdom - HM
Naval Bases Clyde, Devonport and Portsmouth.  DML is co-located with HM Naval
Base Devonport and has a share in the ownership of its key assets for supporting
the nuclear submarine flotilla.  A number of major warships are base ported at
HM Naval Base Devonport together with the Trafalgar Class submarines. Major
re-fit, re-fuelling and de-fuelling of nuclear powered submarines can only be
undertaken at HM Naval Base Devonport due to its unique facilities.



The nuclear re-fuelling and de-fuelling facilities constructed at Devonport were
designed specifically to support the requirements of the current submarine
fleet. The in-service life of the current submarine force is due to extend until
the mid to late 2020's.



DML's principal submarine activities are projected to include:



•       The refuelling and refit of the last of the seven Trafalgar class
submarines

•       The ongoing support to the Trafalgar class submarines and the final
de-fuelling of end-of-life Swiftsure and Trafalgar class submarines

•       Completion of the refit and refuelling of the second of the four
Vanguard class submarines

•       The refit and support of the remainder of the Vanguard class submarines



HM Government has stated that it remains committed to maintaining a submarine
deterrent.



Devonport is the only facility in the UK licensed by the Nuclear Installations
Inspectorate to carry out refuelling operations.  Devonport is also the only
facility in the UK licensed to carry out end of life de-fuelling and
decommissioning of nuclear submarines.  Both the Swiftsure and Trafalgar class
submarines will require decommissioning in the next ten to fifteen years and DML
is the only facility in the UK licensed to carry out the work.



The HM Naval Base Clyde base at Faslane, for which Babcock provides management
services under a £825 million contract through to March 2013, is predominantly
an operational submarine base and is the home port for the Vanguard and
Swiftsure classes of submarines. Once commissioned, the Astute class submarines
will also be based at HM Naval Base Clyde which also provides operational
support and in-service maintenance for submarines.



Through the combination of the DML operations with Babcock's activities on the
Clyde, the Board believes that significant operational benefits can be achieved
for the through life support of the UK's strategic nuclear submarine fleet.



6.            Further information on the Warship Support Modernisation
Initiative ('WSMI')



DML has provided in-service operational support for Devonport based ships and
submarines under the WSMI since September 2002.  The services provided include
docking, planned maintenance, operational defect repair and the installation of
new capabilities, frequently at short notice as well as wider supply services
for HM Naval Base Devonport.



The existing WSMI contract ends in September 2007 although the MoD have
indicated their intention to extend the contract for a further 18 months from
that date pending agreement of a more permanent solution. Since Babcock
currently holds the WSMI agreement at HM Naval Base Clyde, the Board considers
that the combination of Babcock's and DML's WSMI agreements will provide an
attractive proposition to the MoD.



7.            Background to and reasons for the Acquisition



a) Background



The strategy pursued by Babcock for the past six years has been to transform its
business from that of an engineering conglomerate into a support services
company, driven by the Board's belief that support services offered higher
growth and more secure earnings. This transformation is now complete.



Whilst Babcock has diversified its portfolio, the MoD has remained an important
element in the transformation process.  The Defence Industrial Strategy has set
in train a change in the structure of the UK defence industrial base. The sale
of DML represents a significant opportunity for Babcock to play a role in the
consolidation of the maritime sector, whilst remaining focused on the provision
of high value, technically based support services.



b) Strategic rationale



The Board believes that, in bringing together Babcock and DML, it will create a
stronger, more robust business, better able to meet the MoD's changing
requirements and that is capable of growing its earnings through improved
operating efficiencies and the extraction of substantial synergies.



Devonport is the only UK site capable of removing used nuclear fuel from the
UK's nuclear powered submarines, as well as being equipped to carry out their
major refit and operational dockings. It is, therefore, a national strategic
asset.



The Board believes that Babcock's skills and experience are principally in
managing large contracts with technical and service content and in satisfying
the needs of large, often governmental, customers.  This is similar to the
business model of DML and hence the Board believes that the two businesses are
highly complementary. The combination of the existing Babcock businesses with
those of DML will lead to an enlarged Group focused on the provision of high
value, technically demanding support services to defence, public sector and
commercial customers.  In particular the Board believes that it will allow:



•       A transfer of knowledge and expertise between Rosyth, HM Naval Base
Clyde and HM Naval Base Devonport



•       The combination of WSMI contracts at both HM Naval Base Clyde and HM
Naval Base Devonport



•       The combination of the provision of refit and support to the surface
fleet of the Royal Navy at both DML and Babcock's existing operation at Rosyth
in Scotland



The Directors believe that through the consolidation of these activities there
is the opportunity to achieve significant operational benefits which will
provide considerable efficiencies and cost savings to the MoD.



The Board also believes that there will be opportunities to reduce the level of
central costs through sharing of best practice and the combination of
administrative functions.



c) Financial effects of the Acquisition



The Directors believe that the Acquisition will lead to a reduction in costs,
particularly central overhead and procurement savings. It is anticipated that,
on an annualised basis, the cost savings will be approximately £4 million by the
end of the current financial year. Longer term, and in conjunction with the MoD,
the combination of the two businesses provides the opportunity for substantial
operational savings.



In the first full financial year of ownership and after taking into account the
new shares in issue pursuant to today's Placing, the Board anticipates that the
Acquisition will be significantly earnings enhancing.



In connection with the Acquisition and to refinance the group's existing
facilities, Babcock has today entered into new £600 million 5 year bank
facilities.  After taking into account the proceeds from today's Placing of new
ordinary shares, the Board believes it has a prudent capital structure
consistent with the long term nature of many of its revenue streams. Pro forma
net debt at 31 March 2007 of the enlarged group, assuming completion of the
Acquisition, was £334 million.



If the Acquisition does not complete, Babcock will use the proceeds from the
Placing for potential investment opportunities or general corporate purposes.



8.            Details of the Acquisition



Babcock has today entered into an agreement for the Acquisition of DML for £350
million, payable in cash on completion. The Acquisition is conditional on
Babcock shareholder approval and certain consents required by the selling
shareholders from the MoD. The completion of the Acquisition is not conditional
upon the consent of the Office of Fair Trading. It is expected that the
completion of the Acquisition will occur in June 2007.



The integration of DML into Babcock's existing business will be overseen by
Archie Bethel, Managing Director of Babcock's Technical Services division,
supported by John Howie, Managing Director of Babcock Naval Services and Dennis
Gilbert, Managing Director of DML.



9.            Break fees



Babcock has agreed to pay a break fee of £8 million to the vendors of DML in the
event that Babcock shareholders do not approve the Acquisition.



10.          Current trading and prospects



a) Babcock



Babcock today also announced its preliminary results for the financial year
ended 31 March 2007. In those results Peter Rogers made the following comments
on current trading:



'Our financial results were pleasing with continued double-digit sales growth,
underlying profit before tax up by 40% and underlying earnings per share
increasing by 36%.  This is the fifth successive year of double-digit growth.



This has been another good year for Babcock with continuing growth in core
businesses and the successful integration of Alstec and Powerlines, each of
which has performed better than our planning assumptions.  The potential
addition of INS to our nuclear portfolio will further strengthen our position in
the nuclear and nuclear decommissioning areas.



We believe the combined strength of Babcock and DML will yield significant
strategic and financial benefits to the Ministry of Defence in line with the
objectives set out in the Defence Industrial Strategy, whilst creating
significant value for Babcock's shareholders.



The outlook for Babcock remains positive with our markets remaining good and our
ability to deliver to customers' requirements will continue to ensure that we
benefit from the strength of these markets.'





b) The Enlarged Group



The Board believes that, following completion of the Acquisition, the enlarged
group will be well placed to continue to develop its leading position in the
market for the provision of refit and maintenance services for the Royal Navy on
surface ships and submarines. The Acquisition will enable Babcock to meet the
ongoing requirements of the MoD for consolidation and operational improvements
as outlined in the Defence Industrial Strategy.  The Board has confidence in the
financial and trading prospects of the enlarged group for the current year and
beyond.







11.          Shareholder circular and outline timetable

Babcock intends to despatch a circular to Babcock shareholders giving full
details of the Acquisition, and including notice of EGM, as soon as practicable.
The Board expects the EGM to take place in June 2007 with completion of the
Acquisition, subject to satisfaction of the conditions outlined above, expected
shortly thereafter.



ENQUIRIES:


Babcock                                                    Tel:            [phone]
Peter Rogers, Chief Executive
Bill Tame, Finance Director

JPMorgan Cazenove                                          Tel:            [phone]
(Financial advisers, sponsor & broker to Babcock)
Dermot McKechnie
Andrew Truscott

Financial Dynamics                                         Tel:            [phone]
(PR for Babcock)
Andrew Lorenz
Richard Mountain






JPMorgan Cazenove Limited ('JPMorgan Cazenove'), which is authorised and
regulated in the United Kingdom by the Financial Services Authority, is acting
exclusively as financial adviser, sponsor and corporate broker for Babcock and
no one else in connection with the Acquisition and will not be responsible to
anyone other than Babcock for providing the protections afforded to its clients
or for providing advice in relation to the Acquisition or in relation to the
contents of this announcement, or for any other transaction, arrangement or
matters referred to in this announcement.



Certain statements in this announcement are forward-looking statements.  Such
statements speak only as at the date of this announcement, are based on current
expectations and beliefs and, by their nature, are subject to a number of known
and unknown risks and uncertainties that could cause actual results and
performance to differ materially from any expected future results or performance
expressed or implied by the forward-looking statement.  The information
contained in this announcement is subject to change without notice and neither
Babcock nor JPMorgan Cazenove assumes any responsibility or obligation to update
publicly or review any of the forward-looking statements contained herein.



No statement in this announcement is or is intended to be a profit forecast or
to imply that the earnings of Babcock for the current or future financial years
will necessarily match or exceed the historical or published earnings of Babcock
or DML.


                      This information is provided by RNS
            The company news service from the London Stock Exchange