Melrose in £1.8bn takeover of Elster

Posted on June 29, 2012

Melrose has clinched the acquisition of a big German manufacturer of utility meters for an enterprise value of £1.8bn, helped by the agreement of most of its shareholders for the biggest rights issue in the UK announced so far this year.

David Roper, Melrose’s vice-chairman, said support from big investors for a £1.2bn rights issue to fund most of the deal to buy Elster was “fabulous”.

    Melrose is an engineering business that uses the principles of private equity groups to take control of manufacturing companies and improve profitability, with the aim of handing back hefty returns to shareholders.

    It has been hunting for acquisitions after last year losing out to Colfax of the US in its effort to buy Charter, the UK engineering company.

    More than 60 per cent of the rights issue has been underwritten by Melrose’s existing shareholders after Mr Roper and other Melrose executives spent the early part of this week telling them about the deal.

    Mr Roper said that Elster was a comparatively rare example of a “solid” engineering company in a good position in a global market, which was both available for purchase and had the potential for its profit margins to be improved.

    “Such businesses are few and far between,” he said.

    Elster’s meters measure and control the supply of electricity, gas and water in 130 countries.

    With revenues of $1.9bn in 2011, the company is considered to have the potential to turn into a leading supplier of so-called “smart” meters that use computer intelligence to help consumers and industrial groups to save energy.

    While based in Germany and listed on the New York Stock Exchange, Elster’s main shareholder until now has been CVC Capital Partners, a private equity group.

    The acquisition will be implemented principally by a tender offer to Elster shareholders totalling £1.5bn.

    Under this, each shareholder will receive $20.50, which is about 49 per cent above Elster’s share price on June 11, immediately before reports that Melrose was considering a bid for the company.

    The rest of the £1.8bn enterprise value is covered by new debt.

    As part of the deal, Melrose, which has been advised by JPMorgan Cazenove, has agreed a new £1.5bn debt package with banks. Some of the money replaces Melrose’s existing loans.

    The debt facility, at an interest rate of about 3 per cent, is the largest acquisition loan package in the UK in two years.

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