Melrose Makes $2 Billion Preliminary Approach for Charter

Melrose Plc (MRO), the U.K. investment firm run by a former team at industrial company Wassall Plc, proposed to buy Charter International Plc (CHTR) in an offer valuing the engineer at about 1.3 billion pounds ($2 billion).

Melrose is seeking to enter talks with Charter after indicating it may make a cash-and-share bid valuing the company at 780 pence, 30 percent higher than its pre-approach close, it said in a statement today. Charter, which will meet to discuss the offer internally, surged as much as 29 percent to 794 pence in London trading.

The approach comes as the welding and automation-equipment maker is in a state of flux after the sudden departure of Chief Executive Officer Michael Foster this week. The company, which is searching for a new CEO, on June 20 signaled full-year profit will be below initial forecasts and announced a fresh wave of cost cutting, sending its shares down 25 percent.

“The board will meet to consider this unsolicited approach,” Charter said in a statement, adding that the proposal is “highly preliminary, conditional and opportunistic.”

Poor Management

Melrose’s mission is to seek out underperforming companies, Chief Financial Officer Geoff Martin said in a March 9 interview. Businesses with poor management and those that are suffering from raw-material costs or under-investing in factories make viable targets, he said at the time.

Charter had climbed 28 percent to 785 pence as of 12:33 p.m. local time, indicating some investors see the potential for a higher offer or counterbid. Blackrock Inc. (BLK) owns stakes in both companies, Bloomberg data shows. Lincoln Electric Holdings Inc. (LECO), a rival maker of welding machines in the U.S., made a failed bid worth $565 million in 2000.

Charter closed a factory in Ohio and plans to shave a further 30 million pounds from costs over the next 12 to 18 months. Welding-equipment division ESAB is slowing production as it grapples with rising raw-material costs and competition.

The U.K. company is the latest British engineer to be the focus of an approach. Emerson Electric Co. (EMR) purchased Chloride Group Ltd. for $1.6 billion last year, beating off a rival approach from Switzerland’s ABB Ltd. De La Rue Plc (DLAR), a printer of banknotes, got an offer from Francois-Charles Oberthur Fiduciaire SA that fell through.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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