THE race to take control of Britain’s submarine industry has become a three-way contest between BAE Systems, Babcock International and Carlyle, the American private-equity group.

The three have made it through to the second round of bidding for Devonport Management Limited.

DML, which is owned by former Halliburton company KBR, runs a key maintenance and support base for the British nuclear-submarine fleet.

The company that acquires DML will be in a strong position to take a large part of the expected £25 billion programme to build a new fleet of submarines to carry nuclear weapons after the withdrawal of the present Trident boats.

Carlyle, which is being advised by Morgan Stanley, had been tipped to make a joint bid with BAE, Britain’s biggest defence contractor.

But the pair are now working separately, although sources close to both sides say there is still a prospect of their joining forces later. Carlyle is also understood to have held talks with Babcock, which operates the Faslane nuclear submarine base in Scotland.

DML was put up for sale after Halliburton fell out with the Ministry of Defence over the timing of its float of KBR.

UBS, the investment bank, is handling the auction. Estimates of the price the Devonport facility is likely to fetch differ widely, from £200m to £450m.

Sources close to the talks say KBR was eager to choose a preferred bidder towards the end of May. BAE is thought to be pressing for a longer timetable, as it has been preoccupied with negotiations on another maritime deal, its surface-ship joint venture with VT Group.

The deal was to have been announced a fortnight ago, and it is understood agreement has been reached between the two groups on the terms of the joint venture.

But confirmation has been delayed by final negotiations with the government about the construction of two carriers for the Royal Navy.

The BAE-VT joint-venture will take the lion’s share of the £3.8 billion carrier programme. The carrier contract and the joint venture are expected to be announced at the same time.

Some defence industry sources think an announcement may not now come until after the May local elections.

The carriers are expected to enter service in 2012 and 2015, although most defence analysts think the timetable will probably slip.

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