Melrose shareholders back £3.3bn Elster sale

SHAREHOLDERS in Warwickshire turnaround specialist Melrose have backed plans to sell off the group’s principal business in a deal worth more than £3bn.

The decision to approve the board’s recommendation was taken at a general meeting of shareholders in London.

Alcester-based Melrose announced last month that it had concluded a deal – subject to shareholder approval – to sell the Elster Group business to Honeywell International for £3.3bn.

Melrose originally bought German group Elster (which now comprises Elster Gas, Elster Electricity and Elster Water) for £1.8bn in 2012. Its exit sees it generate 2.3 times equity investment and 33% equity IRR (internal rate of return).

In addition to the cash consideration, Honeywell will assume the Melrose group’s FKI UK defined benefit scheme and McKechnie defined benefit pension plan as well as its Elster related pension obligations, which together comprise the majority of the Melrose group’s pension schemes.

Melrose plans to use the proceeds of the deal to finance a return of capital of more than £2bn to shareholders and for general corporate purposes, including paying down existing borrowings.

Announcing the deal last month, Christopher Miller, chairman of Melrose, said the disposal of Elster represented an excellent outcome for the group’s shareholders.
“Through investing heavily and improving operational performance we have created substantial value for shareholders, more than doubling their money in three years,” he said.

Melrose’s strategy is to buy manufacturing businesses with strong fundamentals whose performance can be improved through a mixture of investment and changed management focus, before selling them and returning the proceeds to shareholders.

Shortly after acquiring Elster in August 2012, Melrose reorganised the group into three separately managed business units: Elster Gas, Elster Electricity and Elster Water, and invested heavily to improve each of them.