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Colfax to Buy Charter for $2.4 Billion, Edging Out Melrose

Colfax Corp. agreed to buy Charter International Plc, Europe’s biggest welding equipment maker, for 1.53 billion pounds ($2.42 billion), trumping Melrose Plc’s bid.

Shareholders will receive 730 pence a share in cash and 0.1241 of a new Colfax share for each Charter equivalent, giving a total price of 910 pence, Fulton, Maryland-based Colfax said in a statement. The offer, recommended by Charter, is 48 percent higher than the stock’s closing price on June 28, the day prior to Melrose’s preliminary proposal.

Colfax, a U.S. maker of pumps and valves, and Melrose have been battling for control of Charter as they seek to add businesses such as air- and gas-handling equipment. Colfax Chief Executive Officer Clay Kiefaber said the purchase will complement the company’s fluid-handling equipment range, and also speed expansion into emerging markets including Brazil, Russia, India and China. Charter is registered in Jersey and has its headquarters in Dublin.

“This is a business with great brands and great technology,” Kiefaber said in a telephone interview.

Colfax’s bid tops investment company Melrose’s earlier sweetened 850 pence-a-share offer. Charter’s welding systems are used by shipmakers and the energy industry, while oil and mining companies use its air and gas handling equipment, which include fans and compressors.

Purchase Choice

Charter shareholders can vary the percentage of stock or cash they receive for the shares, the two companies said. Funds that compare themselves to benchmarks such as the FTSE 350 index may not want to hold U.S. shares, said David Larkam, an analyst at Arden Partners who has a “buy” recommendation on Charter.

“Short-term, it’s the best offer on the table,” Larkam said. “Long-term, I don’t know how many people will be able to hold paper in U.S. companies.”

Charter rose 53 pence, or 6.6 percent, to 857 pence in London. The shares have risen 1.5 percent this year, giving the company a market value of 1.43 billion pounds.

Colfax, which is seeking to buy a company five times its size in sales, will fund the acquisition through an equity issue, new debt facilities and existing cash. It expects credit ratings of at least BB- after the transaction, Senior Vice President Dan Pryor said in the interview. Ratings services currently don’t rate its debt, he said.

Colfax said it will raise $805 million by selling stock to existing shareholders and new investors including BDT Capital Partners. Colfax also said it has $2.1 billion in commitments on bank debt, arranged through Deutsche Bank AG and HSBC Bank USA.

Charter was advised by Goldman Sachs Group Inc., JPMorgan Cazenove and Royal Bank of Scotland Group Plc.

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