Charter, which has been courted by Melrose for over eight weeks, appeared to be close to agreeing a deal last week after the turnaround specialist raised its initial cash and share offer for a third time to 850p, prompting Charter to open its books to Melrose for due diligence.
Now Melrose faces a fresh challenge after Charter declared last night that it was in preliminary talks with its new suitor Colfax regarding a possible all-cash offer. Colfax was forced by Takeover Panel rules to respond to speculation that there could be an alternative offer on the table.
Sources close to Colfax said its cash bid, if it emerged, would likely be more attractive to Charter shareholders than the alternative cash and shares offer, also pointing to big synergies between the two sides.
The Maryland-based manufacturer of pumps and speciality valves, which has a market capitalisation of $1bn said Charter presented “an attractive business mix” and said that the takeover would “fit well” with Colfax’s acquisition criteria.
Colfax, which is being advised by Deutsche Bank, would not give any guidance as to what terms it might be prepared to offer, only indicating that “it takes a disciplined approach to acquisitions”.
The group said the deal would be financed with a combination of balance sheet cash, new debt and new equity. Existing shareholders would provide some of the equity.
Melrose, an expert in overhauling industrial firms, made its initial £1.3bn bid for the underperforming engineering group in June.
Charter, which owns welding business ESAB and air and gas handling arm Howden, has issued a string of profit warnings since November and saw its chief executive Mike Foster walk out in June following a disappointing trading update.
But for weeks Charter refused to open its books, despite Melrose saying it would be minded to increase its indicative offer of 840p a share if it was allowed to do due diligence.
The group’s chairman Lars Emilson and newly appointed chief executive Gareth Rhys Williams tried to fend off the bid, unveiling plans to restructure the group at its interim results in July.
ESAB and Howden have struggled to perform in recent months, with Howden hit by a delay in order placements and ESAB’s performance hurt by rising input costs and competition.
When Charter rebuffed a second improved 840p offer from Melrose, several of its major investors including Schroders and Aviva voiced their frustration and called for the firm to allow Melrose to view its books.
The Dublin-headquartered group turned up the heat on Melrose a fortnight ago, announcing it was in early-stage talks with an alternative anonymous bidder to Melrose.
Colfax, which reported net income of $16.2m on revenue of $541.9m in 2010, said the deal would be “significantly accretive to earnings on a fully diluted basis” and “would achieve a double-digit return on invested capital within three to five years.”
The group is keen to match Charter’s Howden division, which focuses on air and gas handling with its own fluid handling business and said Charter’s ESAB business, the welding arm, would become the “foundation of a new growth platform”.
Charter is one of a number of engineering companies that have been approached by US firms on the hunt for acquisitions. Just last month, US firm Cooper Industries was left frustrated over its bid for British electronic components firm Laird, after a standoff over the bid price.