Suitor Melrose seeks more time as deadline for Charter offer nears

Toolmaker Charter, which owns Howden of Renfrew, revealed on Tuesday that it is in talks with a rival unnamed bidder, putting more pressure on Melrose to again raise its offer for the company, or walk away.

Melrose finance director Geoffrey Martin said: “We want Charter to co-operate with us in terms of giving us due diligence and setting a timetable that is sensible for us, which would mean an extension to the current timetable.

“We are not reacting to yesterday’s announcement [about the rival offer]. If there is another bidder, then whatever information that bidder is getting, we will be able to receive.”

Melrose, which has had two approaches rejected by Charter, is prepared to offer 840p per share, valuing Charter at some £1.4 billion. This is 60p higher than the first offer. It faces a 6 September deadline from the Takeover Panel to make a formal bid and will be prevented from bidding for Charter for the next six months if it misses that date.

The overall offer period to the September deadline would be almost ten weeks from when Melrose made its initial announcement on 29 June.

Singer Capital Markets analyst Jo Reedman said an offer from a competitor to Esab, Charter’s welding tools business, seemed logical. “Esab’s operations have underperformed recently, but the business is likely to become a stronger competitor if acquired by Melrose, given its track record of business investment and improvement,” Reedman said.

Talks took place last week between Charter and a mystery suitor willing to pay 870p a share or £1.5bn. Sources have denied that the third party is Ohio-based Lincoln Electric, which bid for Charter in 2000.

Reedman, however, said Melrose’s management could be a little reluctant to stick to its July offer price, following recent market volatility that has hammered industrial stocks.

Shares in Melrose have lost 15 per cent of their value since the company made its first approach to Charter. Charter shares have been trading well below the Melrose approach.

Melrose has said any offer it makes would be a mix of cash and stock. But the steep fall in the company’s shares means it would have to issue 300 million shares just to finance 70 per cent of the deal. The company has 390 million shares outstanding. Melrose’s Martin insisted the firm was “still interested in Charter”.

For the six months ended 30 June, Melrose reported a 32 per cent rise in pre-tax profit before exceptionals of £74.9 million against £56.7m last year. Sales rose 9 per cent to £555.9m. It declared an interim dividend of 4.6p, up 15 per cent.

Melrose said order intake was 18 per cent higher than in the first half of 2010 and that order books continued to increase, indicating a stronger second half.

Shares in Charter closed down 19p at 728p.