Bloomberg News

Colfax in Talks to Acquire Charter After U.K. Firm Boosts Bid

September 04, 2011

Sept. 5 (Bloomberg) -- Colfax Corp., the Fulton, Maryland- based manufacturer of pumps and specialty valves, said it’s in talks to buy Charter International Plc. after an U.K. investment firm boosted its bid for the company to $2.3 billion.

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 today. 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 in press release without citing anyone.

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 group Wassall Plc, after the revised offer. Melrose is planning an equity placement of about 350 million pounds to help fund its bid.

Colfax didn’t say what it plans to bid for Charter. Since 1999, Colfax has made 10 acquisitions and didn’t disclose terms on any. The largest acquisition in which Colfax announced annual sales of the target was the purchase in November 1999 of the Warner Electric units of Dana Corp., which said then it had annual sales of about $360 million.

Holding Talks

Charter said on Aug. 23 that 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,” the Charter statement said.

Charter had sales last year of 1.72 billion pounds, an increase of 3.6 percent over 2009. Net profit rose to 106.6 million pounds last year from 63.5 million pounds a year earlier. Charter made three acquisitions so far this year, including paying 100 million euros for Thomassen Compression Systems BV.

Calls to Melrose Plc’s London office and Nick Miles, an outside company spokesman, 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.

Raising Equity

Colfax, in today’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 $64.2 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 $542 million in 2010. The company on July 29 raised its full-year guidance 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 27 percent this year.

--With assistance from Blanche Gatt and Brett Foley in London, Dan Hart in Washington. Editors: Kevin Miller, Theo Mullen

To contact the reporter on this story: Thomas Black in Monterrey, Mexico at tblack@bloomberg.net

To contact the editor responsible for this story: Kevin Miller at kmiller@bloomberg.net


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