Charter set to succumb to improved £1.44bn offer from Melrose

CHARTER International, parent company of Renfrew-based engineering group Howden, yesterday looked increasingly likely to succumb to a takeover approach from Melrose after the buy-out group upped its offer to £1.44 billion.

On the back of the improved figure, Charter agreed to allow Melrose access to its books although there is still no recommendation to accept the 850p-a-share offer.

Melrose has increased the value of its approach by 10p-a-share over the previous figure and also proposed that shareholders will retain an interim dividend of 8p per share which was declared in July.

Top Charter shareholders, including Aviva and Schroders, who together own 14 per cent of the company, had asked management to open its books to Melrose.

Charter said in a statement: “In light of the heightened recent economic uncertainty and market volatility, the company has commenced discussions with Melrose about its proposal and, in the meantime, has agreed to grant Melrose access to company information.”

David Miller, a partner at Cheviot Asset Management which is a shareholder in Charter, said it seemed a sensible deal for both companies.

“Charter shareholders get an slightly improved offer, which given market conditions is attractive,” he said.

“Melrose, by making a slightly improved bid, gets to see the books. This is an important concession for Melrose shareholders, who will want to know that there aren’t any surprises.”

Analysts said they expected that Charter shareholders would be keen to accept the revised offer.

“We believe that, given the uncertain macro-economic backdrop, Charter shareholders may be inclined to accept this offer and enjoy the exposure to Melrose shares as it extracts the potential value from Charter,” said Numis analyst Scott Cagehin.

Collins Stewart analyst Mark Wilson said he believed the offer would succeed, even without a recommendation, provided due diligence proceeds smoothly.

“With due diligence out of the way and the firm backing of several major shareholders, it seems pretty clear that Melrose could push ahead with a firm offer even if Charter didn’t recommend it,” he said.

Melrose has a track record of buying underperforming operations and turning them around. It recently sold its Dynacast die-cast parts business after nearly doubling its value during six years of ownership.

Charter said in June its full-year results would be below expectations because of continued weakness in its ESAB welding tools business, which has been plagued by higher steel prices. But its Howden business, which specialises in equipment including air compressors and industrial fans , continues to perform strongly. Shares in Charter closed up 36p, or 4.7 per cent, at 799p.