Melrose to set up $3bn sell off, eyes takeover spree

MELROSE Industries is gearing up for another takeover spree as distressed assets become available in the next year, and is likely to sell its US air conditioning arm Nortek in a deal that could raise $3 billion.

The turnaround specialist best known for an £8 billion hostile takeover of GKN in 2018 has grown from a £10 million AIM tiddler to one of Britain’s most important engineering giants.

Today the Airbus and Jaguar Land Rover supplier revealed that sales have plunged 27% in an “extraordinary” quarter, but pledged it is on its way back.

Factories have been closed and job cuts are clearly likely in the future. For now though, Melrose notes that all head office staff at Curzon Street in London are back in place and 80% of the 4000 factory staff are also back at work.

The Birmingham and London HQs are “close to full strength”.

Melrose has cut costs by £200 million and has £300 million of cash in hand, but the need to “adapt the businesses for the new economic environment” will lead to “an inevitable impact on employee numbers”.

The City thinks Melrose will emerge in a good position to pick up rivals on the cheap.

Analysts at JP Morgan said the update “confirms the challenging trading backdrop bu more importantly for the long term outlines a very strong cash performance”. They added, “Nortek’s outperformance….accelerates the strategic options on the assets”.

A sale there could provide the capital for a deal splurge.

Melrose shares have plummeted from 240p in February and took another hit today, losing 22p to 98p. With a market cap of towards £5 billion it remains one of Britain’s key industrial players.

Some investors fear that its exposure to China and two of the industries worse affected by the virus – aero and auto – will damage its long-term prospects.

The move to green power is also a concern, though Melrose insiders note that it has e-tie ups with Delta, BMW and VW already.

It has cancelled its divi to focus on cash generation and notes that it has not had to take bailout loans from the government.