Melrose Sells Elster to Honeywell for $5.1 Billion

By Alex MacDonald 

LONDON--Manufacturing group Melrose Industries PLC said Tuesday it has agreed to sell its German-based energy and water business, Elster Group GmbH, to Honeywell International Inc. for GBP3.3 billion ($5.1 billion) in cash.

Melrose intends to use the proceeds to return capital of over GBP2 billion to shareholders and for general corporate purposes, including paying down existing debt.

Elster Group, which comprises Elster Gas, Elster Electricity and Elster Water, is a leading global provider of gas, electricity and water meters and related communications, networking and software solutions. Elster had gross assets of GBP2.5 billion as of the end of last year and employs about 6,800 people in 39 countries, including the U.S., Germany, the U.K., and Slovakia.

Melrose, which focuses on acquiring manufacturing businesses that have the potential to be improved, said it has generated a 33% internal rate of return within the three years since acquiring Elster for GBP1.8 billion in August 2012.

The sale implies a multiple of 3.1 times Elster's 2014 revenue of GBP1.05 billion and 14.3 times 2014 adjusted earnings before interest, taxes, depreciation and amortization.

"I am pleased that we are able to deliver this return to shareholders earlier than we had originally anticipated and have every confidence that Elster will continue its success story under the ownership of Honeywell," said Christopher Miller, Chairman of Melrose.

Write to Alex MacDonald at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires