Melrose Industries’ proposed $1.8bn purchase of Nortek, a maker of electronics products, could face a hitch as the buyer is thought to be considering the sale of a portion of its stake in the company.
Nortek agreed last July to a $1.8bn cash offer from Melrose, the £11bn private equity group. The deal was due to be completed in February, subject to approval from the US company’s shareholders.
Elliott Advisors, a hedge fund leading a group of shareholders in Nortek, urged Melrose to scrap the deal last week. But Deutsche Bank said in a research note on Friday that the proposed asset sale was a central part of Melrose’s takeover case.
Meanwhile, a source close to the transaction, which Melrose views as the centrepiece of its strategy of building a European-listed buyout group, said its acquisition process remained “at an advanced stage”.
Melrose declined to comment.
The hedge fund, which owns 10 per cent of Nortek, disclosed the proposed asset sale plan in a filing with the US Securities and Exchange Commission on Friday. Its shares fell 4.6 per cent, on expectations of capital return from the sale.
The hedge fund, which has retained the support of several other shareholders, is seeking a longer-term partner for the group and believes the hedge fund is leading it to the bidding stage.
However, Melrose plans to have full control of the business once its shareholding falls below 30 per cent in the event of a sale.
Elliott put out a statement late on Monday calling the proposed sale plan a “recipe for disaster”.
Nortek, headquartered in Sunnyvale, California, is one of the world’s largest manufacturers of electrical building controls. Melrose aims to cut costs and boost the company’s margins through the acquisition.
The deal, which is slated to be completed in February, needs the approval of roughly 58 per cent of shareholders. Melrose is hoping to benefit from a rash of recent merger-and-acquisition deals among US industrial companies.
Last week, Emerson Electric agreed to be bought by Honeywell in a $23bn deal while United Technologies has agreed to buy Rockwell Collins.