Bloomberg News

Chemring Rises as Carlyle Talks Said to Continue: London Mover

November 02, 2012

Chemring Group Plc (CHG) climbed the most in seven weeks after takeover talks with private-equity firm Carlyle Group LP (CG:US) were said to continue even after the U.K. munitions supplier cut its earnings target.

The stock rose as much as 5.9 percent, rebounding from a 17 percent drop yesterday. Carlyle is still pursuing Chemring, two people familiar with the talks said yesterday. Carlyle has yet to decide if it will bid or work with Chemring to seek another extension of a bid deadline now set for Nov. 9, said the people.

Chemring, based in Fareham, England, yesterday reduced its target for earnings per share for the 12 months through October by 13 pence, the second reduction since Carlyle said in August that it was exploring a takeover.

“We believe the Carlyle due diligence process is ongoing as Chemring would have issued a statement if Carlyle had decided to stop the process,” Rami Myerson, an analyst at UBS in London, wrote in a note today. Myerson maintained a buy recommendation on the stock with a price target of 390 pence.

Chemring climbed as much as 15.40 pence to 276 pence, the biggest intraday gain since Sept. 14. The stock was up 5.6 percent at 275.10 pence as of 1:10 p.m., when more than 1 million shares had traded, exceeding the three-month daily average by 17 percent.

Ousted CEO

The company said on Aug. 17 it had been approached by Washington, D.C.-based Carlyle about a possible takeover. The talks at the time were described as “highly preliminary.” Since then, the U.K. company has issued two profit warnings. Last month it ousted CEO David Price. The new CEO, Mark Papworth, takes office on Nov. 5.

Carlyle and Chemring face a Nov. 9 deadline set by the U.K. Takeover Panel to provide more detail on the takeover plan, end talks, or seek an extension. Talks have already been extended twice.

The probability of a takeover has been reduced by the profit warning, which is likely to reduce the price a buyer would pay, UBS’s Myerson wrote in today’s note.

Chemring blamed yesterday’s revision in part on development snags with a countermeasure system, which needs re-testing before it’s accepted by the customer. The company also said several Middle East contract bookings were delayed.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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Companies Mentioned

  • CG
    (Carlyle Group LP/The)
    • $30.8 USD
    • -0.38
    • -1.23%
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