* Schroders: Saw substantial upside in Charter
* Saw Melrose management realising this upside
* Melrose shares up 5.0 percent
(Adds comment from Charter)
By Adveith Nair
LONDON, Sept 28 Schroders , the
second-biggest investor in Charter International which
has agreed to a takeover by U.S. group Colfax , said on
Wednesday it was disappointed Melrose had dropped its
interest in the British engineer.
Melrose, a manufacturing buyout group which had circled
Charter for three months, said on Tuesday it had decided not to
make an offer in light of the current weak economic environment,
having completed due diligence and agreed terms with its
"As long-term shareholders in Charter, we believe there is
substantial upside in the company which, in our view, would have
been realised over the next three to five years under management
by Melrose in a UK listed company," Schroders said.
Melrose had the support of most of Charter's top 10
investors, who thought the company would do a better job of
turning Charter around and wanted to participate in any upside
in Melrose shares, which have been strong performers this year.
Schroders, which owns about 8.4 percent of Charter, and
Aviva, with an 8.7 percent stake, were vocal supporters of the
Melrose offer, despite a higher bid from Colfax.
U.S. pumps and valves manufacturer Colfax, 41 percent-owned
by billionaire brothers Steven and Mitchell Rales, made an
agreed 1.53 billion pounds ($2.4 billion) offer earlier this
month, trumping Melrose's 1.43 billion conditional bid.
The offer was a mix of cash and stock, making it
unattractive for British equity-focused institutional funds --
which own more than 50 percent of Charter's equity -- as they
cannot own U.S. shares.
"We were supportive of the Melrose offer as we never wished
to be 'cashed out' of the long-term potential of the Charter
businesses today, but to be able to participate in the future
upside under the terms of the Melrose offer," Schroders said.
Melrose recently sold Dynacast after nearly doubling its
value during six years of ownership and has turned around the
fortunes of engineering conglomerate FKI, which it bought in
"In our view it is disappointing that the opportunity was
not taken by the Charter board and its advisors to engage with
Melrose and, instead, to solicit alternative approaches -- to
the extent of paying an inducement fee to their preferred US
suitor," Schroders said.
Charter said it had acted in the interest of shareholders as
a whole in securing good value in difficult market conditions.
"It is absolutely right for the board to recommend the
Colfax offer," a spokeswoman said. "An offer from Melrose has
not materialised in the last three months."
Investec analysts said Melrose's decision to walk away was
sensible, in light of current market conditions and the
company's aim of maintaining pricing discipline.
Melrose shares were up 5.0 percent at 0900 GMT.
($1 = 0.637 pound)
(Reporting by Adveith Nair; Editing by Jon Loades-Carter and