LONDON General Electric (GE.N), UK engineer IMI (IMI.L) and buyout funds CVC and First Reserve are preparing binding offers for Italian valve maker Petrolvalves, sources familiar with the situation said. Industry rival Emerson Electric Co (EMR.N), described by one source as a "motivated" bidder, could also participate in the final round of the auction, launched earlier this year by the Candiani family which wants to sell its majority stake.
The sources said the binding offers could value the Italian company at more than 1 billion euros ($1.31 billion).
The bidding process is complicated by the fact that another Italian family, the Lualdi, owns 40 percent of the company and is reluctant to sell.
Petrolvalves, which was established in 1956 and generates the bulk of its revenues overseas, has set a deadline for binding offers towards the end of September in an attempt to sign a deal later this year, the sources said.
U.S. firm General Electric could place a knockout bid and squeeze out Petrolvalves' minority shareholder, said two sources who cannot be named because the talks are private.
General Electric took over the aerospace-parts business of Italy-based Avio for $4.3 billion last year.
Petrolvalves expects core earnings of more than 70 million euros in 2014 and has about 300 million euros in cash, said a source familiar with the process.
Prospective bidders are working on a multiple of at least 10 times its core earnings, he said.
Representatives of Petrolvalves, Emerson and CVC Capital Partners [CVC.UL] were not immediately available for comment. General Electric, IMI and First Reserve declined to comment.
ANOTHER FAMILY SAGA?
The sale revolves around the Candiani family's plans to get out of the company after founder Mario Candiani died last year.
Following his death, the family trimmed its 60 percent equity holding by selling some shares to buyout fund Sator, led by the Italian financier Matteo Arpe. The Candianis are being advised on the sale by Banca Profilo, chaired by Arpe.
The Lualdi, who are advised by Mediobanca, have been sounding out private equity appetite to submit a joint bid for the Candiani's stake, the sources said. But if a trade buyer were to offer an attractive price they would eventually sell, the same sources added.
They said any rivalry between the Candiani and Lualdi families could be a problem, as this might deter some of the bidders who want to secure full control of Petrolvalves.
When another Italian champion, Valvitalia, was auctioned off last year, international industry players including U.S.-based conglomerate Pentair (PNR.N) were interested.
But in the end, Valvitalia's private equity owners had to turn their back on the industry bidders because the company's founder and minority shareholder succeeded in builing up his stake into a majority, with the support of Italy's state-backed private equity fund Fondo Strategico Italiano (FSI).
"This could be another saga: private equity bidders and industry players are wary of investing in a business they can't fully control," said a source who cannot be named because the talks are private.
Earlier this year, the Lualdi family entered into an agreement with London-based buyout fund Permira to study a joint bid but it has now expired, the sources said.
The company, which has a direct presence in the United States, Norway, the United Kingdom and Australia, could even see its sale process run into 2015, another source said.
He said very little information about the company's outlook was made available during the first round of the auction.
(Additional Reporting By Anjuli Davies and Massimo Gaia in Milan; editing by David Clarke)