Charter rejects Melrose approach as too cheap
Engineering group Charter International has rejected an approach from turnaround investment house Melrose, saying its 780p per share unsolicited offer “substantially undervalues” it.
Charter’s shares jumped 28 per cent yesterday after Melrose said it had made the surprise approach for Charter, which has issued three profit warnings since last November as its two engineering businesses have struggled for varying reasons.
But some analysts believe the performance of its welding business ESAB and air and gas handling arm Howden can recover and the business remains fundamentally strong.
“The Board of Charter reviewed the proposal with its advisers and rejected it. The offer is opportunistic and substantially undervalues the Company and its prospects,” Charter said in a statement.
“The Board is confident in Charter’s strengths and is committed to maximising shareholder value.”
Charter’s chief executive Mike Foster walked out on Tuesday following its most recent trading statement last week, which warned on ESAB’s performance. The trading update caused Charter’s share price to fall by a quarter.
Analysts welcomed Melrose’s approach but warned that the process of finalising a deal may take time.
“In addition to the current trading issues, there are a number of issues that might put off a potential buyer, such as the pension deficit, the need to increase investment levels, and the minority shares,” said Killick analysts in a note.
“We believe Melrose will probably need to sweeten its offer, in part to persuade Charter to open its books to allow for essential due diligence to be undertaken. In this event, we believe the deal would still be value-creating for Melrose shareholders.”