REG - Melrose Industries - Air Management Disposal and Return of Capital

Melrose IndustriesAnnouncement

22/06/2021 07:00

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RNS Number : 6192C  Melrose Industries PLC  22 June 2021

22 June 2021

 

 MELROSE INDUSTRIES PLC

 

Completion of Nortek Air Management disposal and Proposed Return of Capital of
approximately £730 million (15 pence per Existing Ordinary Share)

 

Melrose Industries PLC ("Melrose", the "Group" or the "Company") is pleased to
announce the completion of the £2.62 billion ($3.625 billion) disposal of its
Nortek Air Management Division ("Air Management") to Madison Industries LLC
(the "Disposal") and confirm the proposed return of approximately £730
million in cash to Shareholders, equivalent to 15 pence per Existing Ordinary
Share (the "Proposed Return of Capital").  A circular seeking the approval of
Shareholders in respect of the Proposed Return of Capital will be posted later
today (the "Circular").

 

As previously announced, in addition to funding the Proposed Return of
Capital, the net Disposal proceeds will be used to contribute approximately
£100 million to the GKN UK defined benefit pension schemes, so that the
funding deficit will be less than £200 million, as well as to reduce Group
net debt, so that the leverage in the Group adjusting for the Proposed Return
of Capital will be below 2x EBITDA as at 30 June 2021.

Acquired as part of the Nortek transaction in 2016, Air Management represents
the latest success story in a strong track record for the Melrose strategy.
The Disposal proceeds, plus more than £700 million of cash generated by the
Nortek businesses under our ownership and the retention of the Ergotron and
Nortek Control businesses in the Group, means we are well placed to achieve
the targeted doubling of Shareholders' investment on the Nortek acquisition.

As with previous disposals and in tune with the core Melrose strategy of value
return for Shareholders, the Board considers it to be in the best interests of
Shareholders to effect the Proposed Return of Capital by way of (i) a court
approved Reduction of Capital, followed by (ii) a return of capital through
the issue of a new class of B2 Shares which the Company intends to redeem for
cash in order to return 15 pence per Existing Ordinary Share to Shareholders;
followed by (iii) a consolidation of the Company's ordinary share capital in
order to minimise any impact on the market price of the Company's Shares
whilst ensuring Shareholders retain the same pro rata interest in the Company
after completion of the Proposed Return of Capital (the "Share
Consolidation"). Further details are provided below and full details will be
contained in the Circular.

 

Trading Update

 

Ahead of Melrose's half year end on 30 June 2021, the Board is pleased to
confirm that the Group continues to trade in line with expectations as
outlined in its AGM Trading Statement published on 6 May 2021.

 

Both the Automotive and Powder Metallurgy Divisions have seen recovery in the
automotive sector, albeit currently tempered by the impact of the global
semi-conductor shortage.  While it remains too early to state with certainty,
there are also some encouraging signs for the Aerospace Division that the
start of a recovery for that sector is in sight.

 

Pleasingly, all these Divisions have been significantly cash generative during
Melrose ownership.  Indeed, despite the effects of COVID-19, since
acquisition the GKN businesses have generated over £0.5 billion of total free
cashflow after all restructuring costs.  As Shareholders would expect in
these unprecedented circumstances, the Board is currently taking a
conservative stance in the Proposed Return of Capital and the payout is in
line with expectations.  However, on the assumption these encouraging sector
recoveries continue, the Board expects to be able to make another significant
return of capital to Shareholders next year.

 

The Company also notes the disposal of Brush, a leading independent provider
of turbogenerators, transformers and switchgear and associated services, last
week for a net cash consideration of £100 million.   Brush is the final
business to be sold from the FKI acquisition in 2008, which has been a highly
successful investment for our Shareholders, providing a 2.6x return on
Shareholders' initial equity, equivalent to an IRR of 29%.  We thank the
Brush management team for their hard work and wish the business well in its
next phase.

 

Simon Peckham, Chief Executive of Melrose, commented: "The Board is delighted
to have completed the sale of Air Management to Madison Industries, who are
committed to continuing the development of this business.  They will be a
great owner and home for these assets and we wish them well.

 

We have taken a conservative view for the level of the current return of
capital, but if markets continue to recover, we expect to announce a further
significant return next year.  For now, Melrose will proceed to return 15
pence per share to Shareholders, in line with expectations.  We believe
Melrose is well positioned for the next stage of its journey."

 

Further details on the Proposed Return of Capital and Share Consolidation

 

The Proposed Return of Capital and Share Consolidation will require approval
from Shareholders at a general meeting, together with a court hearing to
confirm the requisite Reduction of Capital.

 

Subject to those approvals, Shareholders will receive one B2 Share, with a
nominal value of 15 pence, for every ordinary share held on the record date
for entitlement to B2 Shares, as set out in the expected timetable below. The
B2 Shares will not be admitted to listing or dealing on any exchange. No share
certificates will be issued with respect to such B2 Shares and no CREST
accounts will be credited with such B2 Shares.

 

It is expected that Shareholders who are entitled to the B2 Shares will have
such B2 Shares cancelled on redemption on 31 August 2021. Cheques representing
the nominal value of the B2 Shares (15 pence per share) will be despatched or
CREST accounts credited with the proceeds, as appropriate, in respect of such
B2 Shares on 14 September 2021.

 

The ordinary share capital will then be consolidated on the basis of 9 New
Ordinary Shares of 160/21 pence each (the "New Ordinary Shares") for every 10
Existing Ordinary Shares held at the Record Time for entitlement to the B2
Shares and Share Consolidation, being 6.00 p.m. on 27 August 2021. The Share
Consolidation will reduce the number of Ordinary Shares in Melrose which
Shareholders own, but not the proportion (subject to allowance for fractional
entitlements). The aim of this is to ensure, so far as possible, the market
price of an ordinary share following the Share Consolidation remains
approximately the same before and after the Proposed Return of Capital and to
maintain comparability of historical and future per share data.

 

The ratio used for the Share Consolidation has been set by reference to the
closing middle market price of 156.35 pence on 18 June 2021 (being the latest
practicable date prior to completion). Fractional entitlements arising from
the Share Consolidation shall be aggregated and sold in the market on behalf
of the relevant Shareholders. The aggregate proceeds of sale of such
fractional entitlements, net of commission, shall be donated by Melrose to
charities chosen by the Board.

 

Following the Share Consolidation, application will be made for the New
Ordinary Shares to be admitted to the Official List and to trading on the main
market for listed securities of the London Stock Exchange, with dealings
expected to commence on 31 August 2021 ("Admission"). The New Ordinary Shares
will be equivalent in all material respects to Existing Ordinary Shares,
including their dividend, voting and other rights. The Company will apply for
the New Ordinary Shares to be admitted to CREST with effect from Admission so
that general market transactions in the New Ordinary Shares may be settled
within the CREST system. If Shareholders currently hold Existing Ordinary
Shares in uncertificated form, the Existing Ordinary Shares under ISIN
GB00BZ1G4322 will be disabled by 8.00 a.m. on 31 August 2021 and on, or soon
after, 8.00 a.m. on 31 August 2021 their CREST account will be credited with
New Ordinary Shares under ISIN GB00BNR5MZ78.

 

Unless otherwise defined in this announcement, defined terms used have the
meaning given to them in the associated circular that will be posted to
Shareholders shortly.

 

 

 

 

 

 

Expected timetable of principal events:(1 2)

 Time and Date
 Publication and posting of this Circular,

the Notice of General Meeting and the Form of Proxy
 .............................................. 22 June 2021
 Latest time and date for receipt of Forms of Proxy,

CREST Proxy Instructions and registration of online votes

from Shareholders in respect of the General Meeting
 ........................... 10:00 a.m. on 7 July 2021
 General Meeting*
 ...................................................................................
 10:00 a.m. on 9 July 2021
 Capital Reduction Record
 Time**......................................................... 6:00 p.m. on 6
 August 2021
 Court Hearing to confirm Capital
 Reduction............................................................ 10
 August 2021
 Registration of Court Order and effective date of Capital
 Reduction***.................. 24 August 2021
 ALL SUBSEQUENT DATES AND TIMES DEPEND UPON THE CAPITAL REDUCTION BECOMING
 EFFECTIVE
 Filing of interim accounts with Companies
 House.................................................. 25 August 2021

 Existing Ordinary Share register closed and Existing Ordinary Shares

disabled in
 CREST.............................................................................
 4:30 p.m. on 27 August 2021
 Record Time for entitlement to B2 Shares and Share Consolidation. 6:00 p.m.
 on 27 August 2021
 Cancellation of listing of Existing Ordinary
 Shares............................. 8:00 a.m. on 31 August 2021
 New Ordinary Shares admitted to the Official List and trading

on the London Stock Exchange, ex entitlement to B2 Shares........... 8:00 a.m.
 on 31 August 2021
 B2 Shares issued equal to number of Existing Ordinary Shares

held at the Record
 Time..................................................................... 8:00
 a.m. on 31 August 2021
 CREST accounts credited with New Ordinary Shares....................... 8:00
 a.m. on 31 August 2021
 B2 Shares redeemed and
 cancelled.................................................. 8:00 a.m. on 31
 August 2021
 Despatch of share certificates in respect of New Ordinary
 Shares.................. 14 September 2021
 Despatch of cheques and CREST accounts credited in respect

of proceeds from sale of fractional entitlements arising as a

result of the Share
 Consolidation.....................................................................
 14 September 2021
 Despatch of cheques and CREST accounts credited in respect

of proceeds from the redemption of the B2
 Shares......................................... 14 September 2021

Notes:

(1) All references in this announcement to times are to London time unless
otherwise stated.

(2) The timetable may be subject to change. If any of the above times and/or
dates should change, the new times and/or dates will be notified to the
Financial Conduct Authority and announced to Shareholders through a Regulatory
Information Service.

* A 14-day notice period for the General Meeting is considered by the Company
to be appropriate given the strong Shareholder support (99.89%) received at
the General Meeting held on 6 May 2021 for the disposal of Air Management.
Further, a Court approved Capital Reduction is required prior to making the
Return of Capital to Shareholders, and so the notice period of the General
Meeting takes into account the additional time required in the timetable for
the Court Hearing, together with the Court's summer recess.

** This date is subject to changes that might be imposed by the Court.

*** This date and all subsequent dates will depend on, amongst other things,
the date on which the Court confirms the Capital Reduction and the period of
time required to obtain registration of the Court Order by the Registrar of
Companies. Based on current guidance from Companies House, Melrose has assumed
filing of the Court Order will take 14 calendar days from the date of the
Court Order. If in fact Companies House re-introduces a same-day service or
otherwise expedites or delays the filing, the Company may change the timetable
and will announce such change through a Regulatory Information Service.

 

Enquiries:

 

 Investor Relations:                           +44 (0) 7974 974690
 ir@melroseplc.net (mailto:ir@melroseplc.net)

 Montfort Communications - Financial PR:       +44 (0) 20 3514 0897
 Nick Miles                                    +44 (0) 7739 701634
 Charlotte McMullen                            +44 (0) 7921 881 800

 

 

 

 

 

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