Melrose Still Interested in Charter, Asks for Due Diligence

Melrose Plc (MRO), the U.K. investment firm bidding to buy Charter International Plc (CHTR), said it remains interested in the Irish engineering company and wants a “reasonable time frame” to go through its books.

Charter said yesterday that it had received an approach from another unidentified party, and the company has so far rejected Melrose’s overtures. Melrose, which doesn’t have information on the potential competitor, would be entitled to any data the other suitor receives, Chief Financial Officer Geoffrey Martin said today.

“We are always looking at companies that fit our criteria to buy good-quality engineering businesses that are underperforming,” Martin said by phone after London-based Melrose reported earnings. “Yes, other businesses fit that criteria, but we remain interested in Charter and we want them to cooperate with us.”

Melrose has been given until Sept. 6 by the U.K. Takeover Panel to formalize its proposal to Charter, or it must walk away from the transaction for six months under a so-called “put up or shut up” rule. Melrose said today that it has asked Charter to lengthen the timetable to allow it to make an offer to the engineering company’s shareholders.

‘Early’ Alternative Talks

Charter, which has turned down two indicative cash-and- share bids from Melrose, is “an early stage” of talks with the potential alternative bidder, the engineering company said yesterday. Charter is registered in St. Helier on the Channel Island of Jersey and has operational headquarters in Dublin.

Schroders Plc, Charter’s biggest shareholder with an 8.7 percent stake, said yesterday that it favors Melrose’s approach because investors would be able to benefit from an improved business. Aviva Plc, which owns 8.1 percent of Charter, also said it would prefer an agreement with Melrose, and that it wants Charter to provide the investment company with access to its books.

A spokesman at Charter declined to comment today on Martin’s remarks. Charter said on July 15 that Melrose’s improved bid of 840 pence a share “undervalues the company and it’s prospects.”

Melrose’s first-half net income totaled 78.1 million pounds ($129 million) compared with a year-earlier loss of 12.8 million pounds, while revenue rose 9 percent to 555.9 million pounds, and new orders jumped 18 percent. The investment company said it’s performing “robustly” even amid turmoil in global markets.

Strategy ‘Validation’

The sale of the Dynacast division, completed on July 19, was “a further validation” of the “buy, improve, sell” business model, Melrose said. The investment company, which bought Dynacast in 2005, sold the supplier of handles for Gillette Co.’s Mach III razors at an enterprise value of 377 million pounds, returning capital to shareholders.

Melrose, which owns 10 businesses, isn’t looking at disposing of any other major operations for another few years, Martin said. The company’s holding period for assets is generally three to five years, he said.

“We have a round of investment we put into these business before we sell any of the next one,” he added.

Melrose fell as much as 2.2 percent to 288.5 pence and was down 1.7 percent as of 10:40 a.m. in London trading, valuing the company at 1.13 billion pounds. Charter declined 1.1 percent to 738.5 pence.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.