LONDON Aug 8 A sharp drop in Charter
International's share price over the past week is
adding to pressure for it to accept a bid from Melrose
at a price close to or even below the manufacturing buyout
firm's sweetened offer.
Shares in the British industrial toolmaker fell nearly 15
percent last week, touching a low of 616.5 pence on Friday -- a
level the company traded at before the Melrose offer was made
public in June -- and far below the latest bid of 840 pence.
"I think obviously the share price is telling you something.
It is saying that 840, given current market conditions, is no
longer the right price," said a top-25 shareholder in Melrose.
Top Charter shareholders including Aviva and Schroders, who
together own 14 percent of the company, have gone public asking
management to open its books to the Melrose bid. Bankers say
hedge funds controlling up to 20 percent of the company also
favour a deal with Melrose.
Those calls will likely get stronger now as the company's
stock has reversed most gains made since the Melrose approach
was made public.
"A lot of the risk arbitrage guys who would have got
involved have got badly burnt and would have sold out, having
piled in a lot higher up and will have had to exit," the Melrose
"It is certainly coming back in favour of the Melrose
Shares in Charter were down 2.3 percent at 674 pence on
Monday and are 18 percent off the high of over 830 pence touched
when Melrose sweetened its initial approach.
"The logic for a deal hasn't changed in the last three
days," said a special situations analyst, referring to the drop
in the value of Charter stock. "I think Melrose shareholders
could still be persuaded to back a deal at 840 pence. Anything
over 840 pence has gone away."
Last week, shareholders and analysts had said Melrose need
only raise its takeover offer slightly to gain access to
However, analysts note Melrose might now choose to wait for
markets to stabilise.
"I think Melrose's strategy now is to keep a low profile and
see what happens in the market," said Panmure Gordon analyst
Oliver Wynne-James. "They can't lower the valuation as Charter's
board will say 'you're definitely not getting the books now.'"
"If there's some sort of recovery, Melrose could re-engage
back at those 830-840 levels," the analyst added.
A Charter spokesperson, meanwhile, told Reuters the
company's position that the Melrose proposal undervalues the
company and its prospects was unchanged.
(Additional reporting by Sinead Cruise; Editing by David