Melrose’s £1.4bn bid to buy meter firm

Melrose, which buys underperforming manufacturing businesses and turns them around before selling them, could offer $20.50 per Elster’s American Depository Share, Elster said.

The proposed offer would be at a 25 per cent premium to the German company’s closing price on Friday.

Melrose, which plans to finance the deal through new debt and a rights issue, said it would not go ahead with the deal without a recommendation from Elster’s board or an undertaking from Elster’s majority shareholder, Rembrandt Holdings, a unit of private equity firm CVC Capital Partners.

JP Morgan Cazenove analysts expect the company to raise about £1.2bn through a rights issue.

“One look at the shareholder register for Melrose shows you that you could probably do it in about an hour. It will not be a problem getting finance,” Arden Partners analyst David Larkam said.

Elster, which makes meters for gas, electricity and water utilities, embarked on a cost saving programme in the first quarter, including the closure of four major facilities and a consolidation of operations and sites.

“Given Melrose’s track record of driving operational improvements we see the potential for material margin expansion over Melrose’s investment timeframe,” JP Morgan Cazenove analysts said.

Melrose sold its Dynacast business, which makes die-cast metal parts, for $590m last year.