* Melrose says could pay 780 pence for each Charter share
* Melrose says any deal would be a mix of cash and stock
* Charter dismisses approach as "highly preliminary,
* Charter shares rise 28 pct, above offer price; Melrose up
* Approach triggers rally in engineering stocks; IMI, Rotork
(Adds details from Charter statement, analyst comments, updates
By Adveith Nair
LONDON, June 29 Embattled tool and equipment
maker Charter International dismissed a $2 billion
preliminary approach by manufacturing buyout firm Melrose'
, calling it "opportunistic".
Melrose, which looks to buy underperforming industrial
businesses and sell them after restructuring, is looking at
paying 780 pence per share -- a 30 percent premium over
Charter's closing price on Monday -- the day before it made the
Based on Charter's 167 million outstanding shares, the deal
could be worth a possible 1.3 billion pounds, or just over $2
Charter, whose stock has dropped 30 percent over the last
two months amid problems at its core unit and the subsequent
resignation of its Chief Executive, dismissed the offer as
"highly preliminary, conditional and opportunistic".
It, however, added the board will meet to consider the
News of the approach sent shares in Charter up 28 percent to
784.17 pence -- levels they traded at in May -- just ahead of
the bid level, indicating investors expect a higher offer.
Shares in Melrose were up 3.34 percent at 356.2 pence.
The news pushed shares in other British engineers higher,
with industrial group Rotork and engineering firm IMI
also rising more than 3 percent.
The Melrose approach comes two days after Charter announced
the resignation of its Chief Executive, a week after it issued a
profit warning on problems at its core welding unit,
Analysts have said the company could be vulnerable to a
buyout without a CEO amid a depressed rating.
Peel Hunt analyst Dominic Convey said more bids could emerge
"It's possible that another bid might materialise," Convey
said, pointing to Lincoln Electric , which made a failed
attempt to buy Charter in 2000 and Weir .
"One could imagine shareholders aspiring for a share price
of 800 pence, or even 850," he said. "But given the challenges
the ESAB business is facing right now, anything north of that
would be quite difficult to achieve."
Meanwhile, Melrose said any offer it makes would be a
mixture of cash and shares -- giving Charter shareholders a
chance to gain from any upside in Melrose shares, which have so
far risen 13 percent since the start of the year compared with a
27 percent fall in Charter stock.
A PIECEMEAL SALE?
Charter has two core units. It gets about a third of its
revenue from Howden, which makes air and gas handling equipment,
with the rest coming from the company's welding tools unit,
Convey said the company might look to split the two units to
unlock more value.
"There's no obvious synergy for having those two businesses
under the same corporate umbrella," he said. "The prospect of
splitting the two is possible and would unlock higher value."
The analyst said the ESAB and Howden mix is not necessarily
attractive for possible bidders like Lincoln.
"Melrose might see that as part of their game plan as well,"
($1 = 0.626 British Pounds)
(Reporting by Adveith Nair; Editing by Rosalba O'Brien and Mike