June 18, 2012 / 10:44 AM / 6 years ago

Britain's Melrose in talks to buy Elster for $2.3 billion

(Reuters) - British buyout group Melrose Plc NYN.L is in talks to buy German utility-meter maker Elster Group SE E8D1.F ELT.N in a deal worth $2.3 billion, which if completed would mark its first major deal in four years.

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 percent 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 CVC.UL.

J.P. Morgan Cazenove analysts expect the company to raise about 1.2 billion pounds ($1.88 billion) 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 program 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,” J.P. Morgan Cazenove analysts said in a note.

Melrose sold its Dynacast business, which makes die-cast metal parts, for $590 million last year after steering the company through the financial crisis and overseeing a 32 percent jump in revenue at the business in 2010.

Its last major acquisition was in 2008, when it bought crane, cable and hooks maker FKI Plc for 478 million pounds.

It has been on the lookout for an acquisition after walking away from toolmaker Charter International CHTR.L in the face of a higher offer from U.S. company Colfax Group (CFX.N) last year.

Shares in Melrose were down 1 percent at 377 pence at 0617 EDT on Monday on the London Stock Exchange. They have gained nearly 13 percent so far this year.

Reporting by Abhishek Takle in Bangalore; Editing by Don Sebastian and Brenton Cordeiro

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