Charter considering revised £1.4bn offer from Melrose as rivals hover

Melrose has increased the offer to 840p-per-share in cash and stock - 8 per cent higher than a preliminary offer last month and said it was conditional on financing and due diligence. Charter rejected the initial 780p-per-share proposal made at the end of June.

But in an effort to extract more value for the business, a top ten shareholder said that Charter was trying to "flush out white knights", including US-based rival Lincoln Electric.

Rivals could target Charter to gain control of its welding tools business ESAB, the second-largest in the world but which has struggled to keep up with competition as costs rise.

Analysts said Lincoln Electric and Illinois Tool Works (ITW), the world's number one and three welding companies, could both be drawn into the fray and Charter could be sold for as much as 900p-per-share.

Earlier this week, ITW unveiled a deal to acquire Inchinnan-based Teknek, which employs about 100 staff and whose technology is used to clean machines that make flat-screen televisions and solar panels.

The Scottish firm will become a wholly-owned subsidiary of ITW, which was founded in 1912, and will be rolled into the American company's existing Electrostatics business, within its electronics group.

Singer Capital Markets analyst Jo Reedman said Charter was "clearly less hostile to this revised approach" and appeared more likely to open its books to Melrose, adding the revised offer was not necessarily a knock-out bid. "We would expect the management of both Lincoln Electric and ITW's welding businesses to be concerned about the prospect of ESAB being acquired by Melrose, with its track record of investing in and turning round poorly performing businesses," Reedman said.

Melrose, which looks to buy underperforming industrial businesses and sell them after restructuring, said the majority of the revised offer would be satisfied by the issue of new Melrose shares.

"Melrose would include a 'mix and match' election within its proposed offer structure, allowing Charter shareholders to elect for more cash or more equity consideration, depending on their and other shareholders' elections," it said.A cash and stock bid would give Charter shareholders a chance to gain from any increases in the value of Melrose shares, which are up 16 per cent this year.

Before offer talks were made public, Charter shares fell 27 per cent in two months as it battled management issues amid falling sales at its core unit.

Melrose insists the revised price represents a premium of 40 per cent over Charter's closing share value the day before its original approach.

However, shareholders indicated they may well hold out for at least 850p-a-share and one said he would take the shares rather than cash. Charter shares closed up 12p at 829p while Melrose was down 2.2p at 359.8p.

The increased offer emerged just under a month after Charter surprised the markets with a profits warning that saw its shares plunge below 540p. That came just days ahead of the company announcing that Michael Foster, chief executive, would be leaving and chairman Lars Emilson assuming executive control.

Melrose last month agreed to sell its Dynacast business for $590m (360m) in cash to a US consortium.