Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders. I have a holding in my income portfolio (epic code: MRO).
Today Melrose Industries announced the disposal of two subsidiaries Crosby (manufacturer of lifting fittings and blocks to the oil & gas, construction and mining sectors) and Acco (manufacturer of material handling equipment). The agreed price to be paid in cash on completion is $1,010m (£627.3m) by a company controlled by affiliates of Kohlberg Kravis Roberts.
Based on last year's numbers the price achieved by MRO is 2.5x sales, 10.7x operating profit and 10x EBITDA. This looks to be a good price and compares well with the recent disposals by MRO:
Dynacast - 1.4x sales; 9.1x operating profit; 7.7x EBITDA
Truth - 1.5x sales; 10.75x operating profit; 8.89x EBITDA
Marelli Motori - 1.42x sales; 11.2x operating profit; 9.5x EBITDA
Management say they intend to use the proceeds to pay down existing borrowings and to finance a return of capital in due course. At the interims net debt stood at £1.1bn, geared at 56.5% of equity. I would imagine they might use at least £300-350m to reduce their debt position and the balance after costs and tax distributed to shareholders in the form of a special dividend or return of capital. So I'm guessing, since I don't know the NBV of Crosby/Acco, a return of about £150-200m say 12-16p a share.
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