Babcock and Carlyle left to fight it out in [pound]350m chase for

Babcock International, the engineering group, has pulled into pole position in the [pound]350m auction for DML after two rival bidders dropped out to leave Carlyle, the private equity giant, as the only other suitor for the Devonport submarine yard.

BAE Systems and Rolls-Royce are believed to have pulled out. UBS, the bank running the auction, extended the original deadline of last Friday until Tuesday after the remaining suitors requested more time. It is understood that they asked for the extension because they needed the additional days to rejig their individual offers after partnership talks with the other bidders broke down.

DML is 51 per cent owned by Kellogg Brown & Root, a subsidiary of the US defence giant Halliburton. Balfour Beatty and Weir Group hold 24.5 per cent each. They are expected to decide on a preferred bidder within 10 days, with the aim of closing the deal by the end of June.

Babcock is thought more likely than Carlyle to win because it has greater sector expertise. Devonport is where the UK's nuclear submarine fleet is refitted and refuelled, processes that require extensive technical knowledge and expertise in the environmental handling of toxic material.

BAE Systems is thought to have pulled out last week after talks with Carlyle broke down due to differences over management plans.

Rolls-Royce also said it was no longer interested. "However, we are keeping our position under review," a company spokesman said. The Ministry of Defence is understood to be pressing the sellers for a swift conclusion to the auction, which has dragged on since last year. The sale of Devonport is a crucial part of the MoD's drive to reduce capacity in the maritime industry in line with a reduction in work and fleet size. The DML sale is the first step in this process.

BAE and VT Group are understood to have worked out most details of the agreement to merge their respective shipbuilding activities into a joint venture.

The announcement is understood to be on hold until the MoD signs off on the [pound]3.6bn needed to fund two massive new aircraft carriers.

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