Melrose Plc (MRO), a U.K. investment company focused on engineering companies, agreed to buy Elster Group SE (ELT) for $2.3 billion in cash to access gas- and power- meters for advanced electricity grids.
The $20.50-a-share offer for Elster, partly owned by CVC Capital Partners Ltd., will be funded by a 1.2 billion-pound ($1.9 billion) rights offering and debt, the London-based company said. The offer is 49 percent higher than Elster’s closing price on June 11, the day prior to bid speculation.
The takeover follows Melrose’s unsuccessful battle to acquire Charter International Plc, bought by Maryland-based Colfax Corp. (CFX) for $2.7 billion six months ago. The situation this time is very different, as shareholders and managers with a combined stake of almost 65 percent have already committed their stakes, Melrose Chief Financial Officer Geoff Martin said.
“There’s evidence that a number of global corporates are interested in this area so we went fast, but now we’re secured,” Martin said in a phone interview. “No one can take that stake away from us.”
Elster competes with Itron Inc. (ITRI) and Switzerland’s Landis + Gyr AG, acquired by Toshiba Corp. (6502) last year for $2.3 billion. Other rivals include Sensus USA Inc., and Techem AG, a German reader of utility meters, which is owned by Macquarie Bank Ltd.
Melrose rose 0.1 percent to 368.9 pence at 9:44 a.m. in London trading.
Managed by former Wassall Plc executives, Melrose targets under-performing engineering and manufacturing companies and has investments spanning plastic components, waste recycling and building products. Elster will add to earnings from the second year of ownership.
While “delighted” by the overall plan put in place by CVC, Chief Executive Officer Simon Peckham and CFO Martin now plan to “have a look around” to assess what additional investments and measures are needed to improve the business. CVC floated the business in 2010 and it generated $1.9 billion in revenue last year. Elster has deployed more than 200 million meters.
Martin said the focus is on expanding and improving factories at Elster, and making any bolt-on acquisitions needed, rather than cutting costs. Melrose proceeded with a new 20 million-pound ($31.3 million) factory at its Bridon unit last year, the lifting-equipment manufacturer’s largest investment to date.
Based on estimates for 2012 earnings before interest, taxes, depreciation and amortization, Melrose is paying a multiple of about 10 times. Toshiba paid 10.7 times trailing Ebitda for Landis + Gyr, according to Credit Suisse estimates..
Melrose plans a 2 for 1 rights offering and pre-marketing meetings with institutional shareholders have already been held, the company said. A number of shareholders have already committed to sub-underwrite more than 60 percent of the offering.
The U.K. company’s typical investment horizon is three to five years.
JP Morgan (JPM) Cazenove advised Melrose on the deal and is underwriting the transaction with Investec Bank Plc. Book runners and joint underwrites include Barclays Plc (BARC), Royal Bank of Canada, and HSBC. Rothschild and Deutsche Bank AG advised Elster.
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