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Melrose Declines After Sale of Marelli to Carlyle: London Mover

Melrose Industries Plc, the owner of Brush Turbogenerators, fell to the lowest in two months on concern that the sale of its Italian unit Marelli Motori may dilute earnings.

The shares dropped 2.5 percent to 240.8 pence in London, the lowest since April 22. The drop pared this year’s gain to 7.7 percent. The volume of shares traded was almost 40 percent more than the three-month daily average.

The sale is in line with Melrose’s strategy of buying manufacturing companies, improving their performance and then selling them. Last month it agreed to sell its Truth Hardware unit to Tyman Plc for $200 million. Melrose also said this month it’s in the early stages of considering the disposal of its Crosby and Acco units.

“It is totally in keeping with strategy and it is a better price than we were expecting,” Harry Philips, an analyst at Oriel Securities, who has a buy rating on the stock, said in a telephone interview. “Any investor concern about dilution is rather spurious.”

Melrose agreed to sell Marelli, which makes generators and electric motors, to Carlyle Group LP, the world’s second-biggest manager of alternative assets, for 212 million euros ($280 million) in cash, the London-based company said in a statement today.

Marelli Disposal

The disposal, which raised 20 percent more than Philips had expected, will dilute full-year earnings per share by as much as 4 percent, he said in a note to clients. That would be offset by a return of cash to shareholders at a later date, he said in the interview.

Melrose may raise 2 billion pounds ($3.1 billion) from asset sales and return 600 million pounds of that amount to investors, he said.

“The model is working,” Philips said. “Marelli is another part of the process and the real catalyst for the stock is set to be Crosby which could potentially come later this year.”

Cash Return

The sale of Marelli means investors can look forward to a cash return of about 50 pence per share, probably after the sale of Crosby and possibly by the end of this year, Investec Securities analyst Chris Dyett wrote in a note to clients today. Crosby could fetch 550 million pounds, he said.

Dilution was not a serious concern given Melrose’s record of realizing value from all its assets, said Dyett, who maintained his buy rating and said his valuation of the company looked “increasingly conservative.”

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