Colfax Corp., the Fulton, Maryland-based manufacturer of pumps and specialty valves, said it’s in talks to acquire Charter International Plc., which already had attracted a $2.3 billion bid from an U.K. investment firm.
Buying Dublin-based Charter, a welding company and maker of air- and gas-handling equipment, would “significantly” add to earnings and provide return on invested capital of 10 percent or more within five years, Colfax said in a statement Sunday. Colfax said it would finance the transaction with cash, equity and debt and expects to maintain its credit rating.
“Colfax considers Charter to be a leading player in key markets with an attractive business mix and strong technological capabilities that would fit well with Colfax’s acquisition criteria,” the company said.
Melrose Plc on Sept. 1 sweetened an offer to acquire Charter by 10 pence a share to 850 pence, or 1.43 billion pounds ($2.3 billion). Charter opened its books to Melrose, an investment vehicle created by a former management team of industrial conglomerate Wassall Plc, after the revised offer. Melrose is planning an equity placement of about 350 million pounds ($566 million) to help fund its bid.
Colfax didn’t say what it plans to bid for Charter. On Aug. 23, Charter had said it was holding talks with an unidentified suitor and in a statement today confirmed the suitor was Colfax.
“These discussions are at an early stage and there can be no assurance that they will lead to an offer for the company,” Charter said in the statement.
Charter had sales last year of 1.72 billion pounds, a 3.6 percent gain from 1.66 billion pounds in 2009. Net profit rose to 106.6 million pounds last year from 63.5 million pounds in 2009.
Calls to Melrose Plc’s London office and spokesman Nick Miles after hours weren’t immediately returned. Scott Brannan, Colfax’s chief financial officer, didn’t immediately respond to a voicemail left by Bloomberg News seeking comment.
A voicemail left outside office hours for Jonathan Glass, partner at Brunswick Group’s London office, which represents Charter, wasn’t immediately returned.
Colfax, in Sunday’s statement, said it would raise equity among “certain existing shareholders” and long-term outside investors who “share Colfax’s values and vision.” The company had $62.2 million of cash at the end of June, according to Bloomberg data.
Colfax said it would be able to maintain its credit rating of BB-/Ba3 or better with an acquisition of Charter.
The company is “committed to maintaining a prudent capital structure,” according to the statement. The mix of cash, equity and debt will leave it with “sufficient flexibility to continue existing and new initiatives without undue balance sheet risk.”
Colfax had net income of $16.2 million, or 37 cents a share, on revenue of $541.9 million in 2010. The company on July 29 raised its full-year forecast for adjusted earnings to $1.20 to $1.26 a share from an earlier estimate of $1.12 to $1.22.
The company’s stock fell $1.46, or 5.9 percent, to $23.39 in New York Stock Exchange composite trading on Sept. 2. The shares have gained 70 percent in the past year.
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