BAE Systems, Britain’s largest defence company, has ruled itself out of bidding for the Devonport submarine servicing yard after failing to agree terms with potential partners.

Babcock, the engineering group, and Carlyle Group, the private equity firm, are understood to be the only companies to submit bids to UBS, which is handling the sale of Devonport.

The £350 million yard, which is owned by the Halliburton subsidiary KBR, Weir Group and Balfour Beatty, is responsible for refitting and servicing the Royal Navy’s nuclear submarines. BAE builds submarines at its Barrow yard and was interested in buying Devonport so that it could provide both construction and postlaunch servicing facilities.

The Ministry of Defence was concerned about BAE’s dominance in the submarine sector, particularly with the imminent £20 billion replacement of the Trident nuclear deterrent, and encouraged BAE to bid only with a partner.

BAE held talks with Babcock, which maintains the Faslane submarine base in Scotland, and with Carlisle Group, but was unable to agree terms. The two companies will go into the final round of bidding by themselves.

BAE is understood to have rejected a partnership with Carlyle because it was concerned whether the private equity firm would put sufficient investment into the yard before the introduction of the next generation of Trident submarines.

BAE also failed to agree financial terms with Babcock, marking the second time that a deal with the company has collapsed. Last year BAE, VT Group and Babcock discussed merging their surface-ship building facilities, but the deal fell apart. BAE and VT resurrected the talks last November and a formal announcement on the merger of their shipbuilding assets is expected soon.

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