THE race to control Britain’s nuclear-submarine industry has taken an unexpected twist with a looming split between BAE Systems and Carlyle Group, the American private-equity firm.

BAE and Carlyle were the Ministry of Defence’s “dream-team” to bid for Devonport Management Limited (DML), which runs a key maintenance and support base for the submarine fleet. DML has been put up for sale by KBR, the US group that is its majority shareholder, with UBS appointed to handle the auction.

But it emerged last night that BAE and Carlyle were considering making rival bids. First-round offers are due in this week. “They have not decided yet — it could go either way in the next few days,” said a source close to BAE and Carlyle.

While defence-industry executives said they were certain BAE and Carlyle would go it alone, a banker close to the private-equity firm said there was still a chance of the joint approach being revived.

Two other groups are expected to join the race. The quoted engineering group Babcock, which runs the Faslane submarine base and the Rosyth naval dockyard in Scotland, will bid, as will General Dynamics (GD), the US defence contractor that builds America’s nuclear submarines.

The Sunday Times revealed in January BAE and Carlyle’s plan to team up. The combination was welcomed by the MoD, which believed Carlyle’s skill in reorganising businesses — demonstrated through its involvement in the privatisation of Qinetiq, the defence-research agency — would help to achieve significant savings in maintaining Britain’s submarine fleet.

The two were expected to create a new joint venture that would have combined DML with BAE’s submarine-construction yard at Barrow, the only such facility in the country.

The pair would then have been in a powerful position to win the lion’s share of work on Britain’s planned new fleet of nuclear-missile submarines. The £25 billion programme, which will extend over 20 years, came a step closer last week when MPs voted to replace the UK’s nuclear deterrent.

But BAE and Carlyle are understood to have been so far unable to agree a valuation of the Barrow yard in advance of the establishment of the joint venture. BAE declined to comment last night, as did Carlyle.

The valuation of DML is uncertain. Although some defence experts say its strong recent earnings should see it fetch about £450m, some believe £250m is closer to the mark, pointing out that its future profitability is heavily dependent on winning contracts from the MoD.

Babcock and GD are both regarded as formidable bidders. The former has earned kudos with the MoD for its handling of Faslane, while submarine experts from GD helped to sort out the UK’s troubled Astute class submarine programme.

The shake-up of the UK submarine industry is not connected to the planned rationalisation of naval surface-vessel yards.

BAE is close to completing a joint venture with VT Group that brings together most of Britain’s warship-construction facilities, creating a group that will take most of the work on the Royal Navy’s programme to build two new aircraft carriers.

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