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Charter jumps 2% as US group Colfax puts in rival bid to £1.4bn Melrose offer

Charter shares have moved nearly 2% higher on the prospect of a bid battle for the engineering group.

Buyout specialist Melrose last week raised its cash and share offer for Charter to 850p a share and had gained access to its books, but over the weekend US group Colfax confirmed it was considering an all-cash bid. The US group said it would fund any deal from its existing cash balances, new debt and new equity, backed by certain shareholders and third party investors. Analysts reckoned it would have to pay at least 900p to beat away Melrose’s offer. In the market Charter added 14p to 799.5p while Melrose fell 3.1p to 293.5p. Steve Medlicott at Altium Securities said:

Colfax confirms its interest in both parts of Charter albeit it tempers the statement by stating that it will take a disciplined approach to acquisitions, presumably regarding price. This statement should flush out any further interest in the group. We retain our buy stance.

At Evolution Securities, Harry Philips said:

bn critical pump manufacturer Colfax seems at first glance an unlikely bidder given the £1.45bn value of the potential Melrose bid. It would be financed by balance sheet cash, new debt and new equity, the latter provided by existing shareholders as well as long term third party investors that share Colfax’s values and vision. This is clearly a reference to the Rales Brothers who own 43% of Colfax as well as being a major player in Danaher, the .5bn industrial conglomerate. For further context of the task in hand, Colfax in the first half of 2011 generated revenue of 5m and earnings of m. It is clear that Colfax will have to definitively prove the credibility of the funding of a potential cash offer.

If Colfax wants to win in a clear cut fashion, it needs to be above 900p but for a company that ‘takes a disciplined approach to acquisitions with clearly defined and financial criteria’, the maths that holds back Melrose surely applies to Colfax and maybe even more so. We do not see Melrose walking away at the current time when there are many more stages to be played out. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds