July 25, 2011 / 6:30 AM / in 6 years

UPDATE 2-Melrose says may raise offer for Charter

* Says willing to consider increasing proposal if has “access to due diligence”

* Top-10 Charter shareholder says company should give Melrose access to books

* Charter shares rise 1.3 percent, Melrose flat (Adds shareholder and analyst’s comments, updates shares)

By Adveith Nair

LONDON, July 25 (Reuters) - Manufacturing buy-out firm Melrose said it would consider making a higher proposed offer for Charter International if it was given access to the British engineering company’s books.

Melrose also said it would not be appropriate to proceed with an offer without being allowed to undertake due diligence.

“Melrose is willing to consider increasing its proposal to reflect any information which demonstrates that it has materially undervalued Charter and justifies such an increase,” it said.

The company’s latest proposed bid, made earlier this month and pitched at 840 pence per share, is 8 percent higher than its previous indicative approach. That offer, however, is still at the level Charter shares were trading at in May, before falling sales and management issues pummelled the stock.

Charter rejected the offer that valued it at about 1.4 billion pounds ($2.3 billion) and said the increased bid still undervalued the company. It also named a new chief executive and said it would look at all alternatives.

Analysts say Charter could be worth more than 900 pence per share, and a shareholder told Reuters earlier this month that Charter was trying to “flush out white knights”, including U.S.-based rival Lincoln Electric .

“We estimate a maximum price of 950 pence per share if an offer from a third party is received and Charter becomes the subject of a bidding war,” Singer Capital Markets analyst Jo Reedman said.

A top-10 shareholder in Charter said on Monday Charter should allow Melrose access to satisfactory due diligence.

“I don’t see how Charter can not respond by opening their books, as Melrose has even said they will pay more if there’s something good in there worth paying for,” the shareholder said. “I can’t see how they can resist Melrose in terms of not opening their books going forward.”

The shareholder added the latest bid proposal was fair, especially since any Melrose offer would be a mix of cash and shares, giving investors a chance to benefit from any further increase in Melrose’s share price.

Melrose’s share price is up 15 percent this year. Before offer talks were made public Charter’s shares fell 27 percent in two months.

Melrose shares were flat at 368 pence on Monday, while shares in Charter were up 1.3 percent at 796 pence, valuing the business at just over 1.3 billion pounds. ($1=0.613 pounds) (Editing by Greg Mahlich)

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