UPDATE 2-Chemring CEO switch arouses doubts about Carlyle deal
* CEO change suggests deal is collapsing - analyst
* Company names Mark Papworth as CEO, effective Nov. 5.
* Shares fall as much as 10 pct (Adds analysts comments, background; updates share movement)
By Brenton Cordeiro and Shilpa Hinduja
Oct 23 (Reuters) - Defence equipment maker Chemring Group Plc said Chief Executive David Price will step down immediately, raising doubts about the proposed takeover of the company by U.S. private equity firm Carlyle Group.
Chemring, whose shares fell as much as 10 percent on Tuesday morning, replaced Price with Mark Papworth, a former executive at oil industry services company John Wood Group Plc, where he was credited with leading a turnaround.
"The move potentially flags that the deal is collapsing," Oriel Securities analyst Guy Brown said.
"It would appear odd to appoint a new CEO with the belief the group is going to be taken over within a matter of weeks."
Carlyle is required to make an offer for Chemring, which has a market value of about 625 million pounds ($1 billion), or walk away by Nov. 9.
Carlyle and Chemring representatives declined to comment on the status of the takeover talks. The companies have already been granted two extensions to reach a deal by the UK Takeover Panel.
"The market thinks the Carlyle deal is not going to happen and so the board has had to find someone, and very quickly, to take over as chief executive and run the business," said Arden Partners Ltd analyst Graham Webster.
Chemring, which makes defence equipment such as flares and explosive device detectors, issued a profit warning in August, less than two weeks after receiving a preliminary expression of interest from Carlyle.
A person familiar with the matter had told Reuters that the profit warning had delayed the sale process as Carlyle considered the new numbers.
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Papworth, who had been the chief executive at John Wood Group's gas turbines services division and a member of that company's board, will take on the top job at Chemring on Nov. 5.
"This decision is a reflection of the board ... they feel that a change in leadership maximises the strength of the company's position," a company spokeswoman told Reuters.
Chemring, like other defence equipment manufacturers, is bracing for lower defence spending in the United States and Europe as governments try to rein in budget deficits.
The company's order book at the end of July stood at 910 million pounds, down 9 percent from a year earlier. For the six months to end-April, underlying pretax profit fell 21 percent to 39.2 million pounds.
"During (Papworth's) tenure at Wood Group he implemented and delivered a strategic review which resulted in a successful turnaround, improved manufacturing capabilities and substantial improvements in profitability," Chemring said in a statement.
Price, who has been at the helm of Chemring since 2005, is the second senior executive to leave the company this year. Finance Director Paul Rayner stepped down in July.
Chemring was hit by an investor revolt in March, when more than a fifth of its shareholders voted against the company's remuneration report. No management bonuses were awarded in 2011 because earnings per share and cash flow targets were missed.
"Shareholders were growing increasingly impatient with (Price)," said Liberum Capital analyst Ben Bourne.
Chemring shares were down nearly 7 percent at 323.5 pence at 0851 GMT on the London Stock Exchange. The stock has lost about a fifth of its value this year. ($1 = 0.6237 British pounds) (Reporting by Brenton Cordeiro and Shilpa Hinduja in Bangalore; Editing by Don Sebastian and Ted Kerr)