Charter Shareholder Favors Melrose Over Alternative Bid

Charter International Plc (CHTR)’s main shareholder said it favors a bid proposed by Melrose Plc (MRO) because investors would be able to benefit from an improved business, after Charter said another offer had surfaced.

“If there were a different bidder only in cash at a level modestly above the Melrose indicative offer, then we’d rather be interested in the Melrose offer, which enables us to participate in the upside through the Melrose paper,” Richard Buxton, a fund manager at Schroders Plc (SDR), said in a phone interview today. Another Charter shareholder said it still wanted the company to allow due diligence access to Melrose.

Charter, which has turned down two indicative cash-and- share offers from Melrose, is in talks with a potential alternative bidder, and discussions are at “an early stage,” the London-based company said in a statement today. The Daily Telegraph reported that Charter had received an 870 pence ($1.43) per share indicative offer from the unnamed bidder. The approach may have come from a party connected to Lincoln Electric Holdings Inc (LECO), the newspaper reported. Lincoln Electric is not taking part in the bidding process, Reuters reported, citing people familiar with the situation.

The Melrose offer is better than “being cashed out at a few percentage points higher,” Buxton said. Schroders holds 8.7 percent in Charter, according to data compiled by Bloomberg.

“We would still like Charter to allow due diligence access to Melrose,” David Lis, head of U.K. equities at Aviva Investors, said in an e-mailed statement. “On the new approach from an as-yet unnamed suitor, we would prefer Melrose paper to say 870 pence cash as that would allow us to participate in the future upside under Melrose’s stewardship.”

Aviva Plc holds 8.1 percent of Charter, the third-biggest stake, according to Bloomberg data.

Shares Rise

Charter rose as much as 153 pence, or 25 percent, to 775 pence in London, the biggest intra-day rise since June 29. The shares closed at 747 pence, giving Charter a market value of 1.25 billion pounds.

Gareth Rhys Williams took over as chief executive officer of Charter in July to help overhaul the ESAB welding unit, where margins have fallen and working capital has increased. Margins at the Howden subsidiary, which supplies compressor systems to the oil & gas industry, improved, the company said on July 26.

The improvement at Howden makes the unit more attractive, Peel Hunt’s Dominic Convey said in a note. The preliminary nature of talks over a rival offer may lead shareholders to favor Melrose over a trade bid, the analyst said.

Melrose, an investment firm run by the former management team at Wassall Plc, offered 840 pence a share on July 15, and added that it would consider raising its proposed offer if Charter could show it was materially undervalued. The U.K. Takeover Panel gave Melrose a Sept. 6 deadline by which it must announce whether it has a firm intention to make an offer.

To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net

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

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