UK buyout firm Melrose asks target Charter for time

LONDON Wed Aug 24, 2011 5:30am EDT

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LONDON (Reuters) - British manufacturing buyout firm Melrose Plc NYN.L said it had asked reluctant target Charter International CHTR.L for more time to table a firm offer and reported a 32 percent increase in first-half pretax profit.

Toolmaker Charter said on Tuesday it is in talks with an unnamed bidder, putting more pressure on Melrose to further raise a revised offer for the company it made in July, or walk away.

"We want Charter to cooperate with us in terms of giving us due diligence and setting a timetable that is sensible for us, which would mean an extension to the current timetable," Finance Director Geoffrey Martin told Reuters on Wednesday.

"We are not reacting to yesterday's announcement," Martin said. "If there is another bidder, then whatever information that bidder is getting, we will be able to receive."

Melrose, which has had two approaches rejected by Charter, is prepared to offer 840 pence per share. It faces a September 6 deadline from Britain's Takeover Panel to make a formal bid and will be prevented from bidding for Charter for the next six months if it misses the deadline.

The overall offer period to the September deadline would be almost 10 weeks from when Melrose made its initial announcement on June 29.

Singer Capital Markets analyst Jo Reedman said an offer from a competitor to ESAB, Charter's welding tools business, seemed logical.

"ESAB's operations have underperformed recently, but the business is likely to become a stronger competitor if acquired by Melrose, given its track record of business investment and improvement," Reedman said.

Melrose, which has grown by buying underperforming operations and turning them around, sold its Dynacast business during the first half after the unit posted a 32-percent increase in revenue in 2010.

The Telegraph newspaper said on Tuesday talks had taken place over a 1.5-billion-pound ($2.5-billion) proposal involving Lincoln Electric (LECO.O), potentially trumping Melrose's offer.

Reedman, however, noted Melrose's management could be a little reluctant to stick to its July offer price, following recent market volatility that has hammered industrial stocks.

Shares in Melrose were down 1.4 percent at 290.8 pence at 5:05 a.m. EDT. The stock has lost 15 percent of its value since the company made its first approach to Charter.

Charter shares, meanwhile, were down about 1 percent at 740 pence, well below the Melrose approach.

Melrose has said any offer it makes would be a mix of cash and stock. But the steep fall in the company's shares means it would have to issue 300 million shares just to finance 70 percent of the deal. The company has 390 million shares outstanding.

Finance Director Martin, however, insisted Melrose was "still interested in Charter."

PROFIT RISES

For the six months ended June 30, Melrose reported a headline pretax profit of 74.9 million pounds ($123.5 million), compared with 56.7 million pounds last year.

Sales rose 9 percent to 555.9 million pounds.

"More than 50 percent of the group is in energy, oil & gas and mining, which are strong end-markets and which we think will perform better than the average," Martin said.

Melrose said order intake was 18 percent higher than in the first half of 2010 and that order books continued to increase, indicating a stronger performance in the second half.

For the latest first-half, Melrose reported an operating margin of 15.4 percent, surpassing the 15 percent target it set in 2008 and ahead of a 3-5 year timetable.

Martin said the company could soon hit the higher end of its new 16-17 percent margin target.

"It might take a year or so, but margins will continue to improve," he said.

($1 = 0.606 British Pounds)

(Reporting by Adveith Nair; Editing by Matt Scuffham and Sitaraman Shankar)

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