Melrose Industries Share Discussion Threads

[grahamburn] 04/4/2018 14:56

I know I promised myself not to visit this board again until after the takeover completed (or in the unlikely event it is blocked), due to the dramatic decline in the quality of discussion on here. However, this from the Business Commentary column in The Times today was too clever/amusing not to share.
________________________

Comment
April 4 2018, The Times
Unions get wrong signals on GKN
Robert Lea

GKN’s radar system is an extraordinary invention. It is completely invisible. It has the ability to get in people’s minds and render their speech nonsense. For the GKN radar is exactly that: an invention. It doesn’t exist.

The GKN radar has become a new battlefield for the trade unions. Frances O’Grady, the TUC general secretary, went on BBC radio to declare that the government should belatedly intervene in the £8 billion takeover by Melrose on national security grounds, arguing: “If I was flying a military aircraft kitted out by a GKN radar, I would be worried.” So would we. Not just because Ms O’Grady doesn’t hold a pilot’s licence, but because GKN’s radar system is a fabrication of the fictional kind.

To be charitable, Ms O’Grady took her GKN radar intelligence from a misinformed piece in another newspaper. But that is kind of the point: it is another example of trade union misinformation during this takeover battle of fake news (as it happens, GKN used to make radomes, the glass domes that protect radar avionics, but it has sold the business).

The irony of the scrambled GKN radar message goes with the fuzzy transmissions of Jack Dromey, the trade unionist-turned-Labour MP who represents 900 GKN Driveline workers in his Birmingham constituency. To stoically rubbish the Melrose takeover when GKN’s own management had already sold his constituents down the M6 with the sale of GKN Driveline on the cheap to Dana, a bunch of Americans who subsequently and rather ungallantly admitted they weren’t that bothered about the deal either way, suggests Mr Dromey hasn’t been concentrating. Or too busy reading the Daily Mail.

To quote their one-time political hero Tony Blair, there are some battles that are just not worth fighting. With GKN it is more a case of fighting the wrong fight: neither GKN management nor the Melrose board are the friend of trade unions.

Ms O’Grady closed her radio address admitting that she could not comprehend why it is short-termist shareholders and not the workforce who decide the ownership of a company. Thirteen years of Labour rule did not move the dial on takeover law. Yet if thinkers on the centre-left really care about corporate ownership, they could do worse than look to the stiftungs of the Continent. These share-bloc-owning foundations can be used to protect companies from takeovers. In a British context, they could be used to align the interests of employees, pension scheme members, even local government. But then again, just rubbishing the boss class is far easier.

[meanwhile] 04/4/2018 13:21

They're not listening to you, Minerve.
Like me, you've undergone an 'impurity filtration process'.

[minerve] 04/4/2018 12:46

Love = share price up, Hate = share price down.

All you need is love, all you need is love, all you need is love, love, love is all you need! :)

[minerve] 04/4/2018 12:43

"Now the deal is done SPs will be subject to the vagaries of the market"

Eh?

Is that how you explain the falling share prices?

[brexitplus] 04/4/2018 09:35

Ex Div date tomorrow for both GKN and Melrose.

Now the deal is done SPs will be subject to the vagaries of the market.

£3 possible for Melrose at Year end. Forget the numbers. Investor sentiment will drive the price and investors love Melrose just as they disliked GKN. Of course I mean the institutional investors. Now Melrose is in charge GKN may become a “loved” company which will be great if one or both parts are refloated in the future, as is quite possible.

[yertiz] 04/4/2018 07:27

Please disregard my previous valuation calc. As Meanwhile pointed out I had double egged the pudding and disregarded the Hawking equation - making something out of nothing.

Back to the naughty step for me.

[meanwhile] 04/4/2018 00:09

Getting,
I'm going to have to stop reading your posts. You're just wasting my time with stupid questions and simple comments, made because you either don't read all the words, mix them up or imagine some implication from them. You must have been a nightmare to work with.
I can now see how your name may have arisen. However, it seems a bit out of date now and gettingrichslow should be replaced by goingdownhillfast.

[gettingrichslow] 03/4/2018 23:16

Meanwhile, yes it was in relation to your last sentence in post 3297. I did it as an equation because I thought you like that style rather than words (I thought?) Does that help?

[meanwhile] 03/4/2018 22:56

getting,

I don't know what new information you're giving us.
Post 3294
"Melrose businesses, without GKN, Nortek + Brush, are currently valued by the market at £4.42B (market cap.) + 0.58B of debt., ~ £5B."
Any cash would be held in the businesses and would contribute to their value.

Maybe you're referring to 3297 "I also didn’t understand the debt facilities benefit to values".
I think Yertiz is talking about debt facilities i.e. terms of borrowings. He says "the improved debt facilities Melrose can call on". Debt is a number and is payable whatever the facilities provided. MRO may get better terms but debt has to be repaid.

[gettingrichslow] 03/4/2018 22:41

Meanwhile, because enterprise value is calculated as the market capitalization plus debt, minus total cash.

EV = market value of stock + market value of debt - cash

If you wanted to buy a company you would have to cover their market cap and pay their debt off.

[gettingrichslow] 03/4/2018 22:27

Meanwhile, because enterprise value is calculated as the market capitalization plus debt, minus total cash.

EV = market value of stock + market value of debt - cash

If you wanted to buy a company you would have to cover their market cap and pay their debt off.

[losos] 03/4/2018 22:05

MEANWHILE - "I think Rumsfeld also talked about unknown unknowns."

Yertiz - "Yes he did but I don’t know what they are!"

Haha, this board has given me some laughs but this has to be the best of the lot, off to my bed now with a smile, thanks to you both.

[meanwhile] 03/4/2018 21:00

Yertiz,
As they say up here - wat fettle?

The 10.4B for GKN I Would say included a good deal of GKN improvement, so I would say you double counted that in your model.
Didn’t you also double count Ergotron?
I also didn’t understand the debt facilities benefit to values.

[yertiz] 03/4/2018 19:55

Yes he did but I don’t know what they are!

Do-able, needs 12% added to GKN value in 8 months and with a following breeze and proceeds from Ergotron & Powder Metallurgy, we’ll be there, I reckon. Depends how much is used to reduce debt and returned to us shareholders.

As we say down here - Proper!

[meanwhile] 03/4/2018 18:48

Yertiz,

You've had a good go at the calculation and let's hope you are near the required mark for £3.
I think Rumsfeld also talked about unknown unknowns.

[meanwhile] 03/4/2018 18:09

Yertiz,

Ergotron is part of Nortek. See Melrose website, extract below.
Melrose businesses, without GKN, Nortek + Brush, are currently valued by the market at £4.42B (market cap.) + 0.58B of debt., ~ £5B.

The Melrose Group currently consists of four divisions, three of which were acquired with Nortek in 2016: the Air Management division, which includes the Heating, Ventilation & Air Conditioning (HVAC) and Air Quality & Home Solutions (AQH) businesses; the Security & Smart Technology division, comprising the Nortek Security & Control (NSC), Core Brands and GTO businesses; and the Ergonomics division, which comprises the Ergotron business. Energy is the fourth division and includes the Brush businesses from our FKI acquisition in 2008.

[minerve] 03/4/2018 15:05

"Yertiz, my understanding from articles is that Melrose like working with EBITDA when acquiring firms and use the multiple when selling, looking to increase EBITDA markedly"

Oh, really? Sigh.

[brexitplus] 03/4/2018 15:02

Yertiz, my understanding from articles is that Melrose like working with EBITDA when acquiring firms and use the multiple when selling, looking to increase EBITDA markedly.

I’m sure someone can do the calculation for the acquisition. I reckon somewhere about 7x based on the most recent GKN results. Melrose generally sell in the range 12-14x, although I have no idea what their target is here.

It would however suggest they bought at a decent discount.

As you say, Stevens and Sclater seemed to think GKN was worth £10.4 billion, ie. 605p per share, which is 9.2x EBITDA, thus suggests a discount of roughly 20+% from the GKN figure!!! Good enough for me.

I forgot to add, I got my data from 4-traders.com who supply the calculations and forecasts for you. Sadly I don’t have the Idiots Guide to Reading Company Accounts, nor am I a Captain of Industry.

[yertiz] 03/4/2018 14:42

GKN had recently promoted itself as a business worth £10.4 billion. I don't doubt that.

Add to that the values for Ergotron and Nortek - approx. £5.5 billion as a very conservative valuation and we are into the realms of £16 billion, give or take. Add on Brush (£0.4 billion) plus the improved debt facilities Melrose can call on, we can't be far shy of £17.5 to £18 billion already - that's without undertaking changes for this year to 'improve', now we've done the buying bit.

Those are the Rumsfeld-like known-knowns, once we unleash the potential (known-unknowns) the value will be well over those figures.
Its going to take a little time, but MRO will be making necessary changes even now.

[meanwhile] 03/4/2018 14:21

Yertiz,

Let's hope you're right about the £3 per share by year end.

With almost 5 Billion shares in issue and 4.5B of debt, the Melrose businesses will need to be valued by the market at total £19-20B for a £3 per share valuation.

Any idea how the market will arrive at £19-20B, by adding the individual values of the businesses? Have you made a calculation?

[brexitplus] 03/4/2018 12:36

Yertiz, I agree that GKN was bought at a discount and the upside potential is substantial.

And I see Melrose near £3. Even without much from GKN as this may be difficult in the early periods since Stevens gifted £40 million to Dana and spent about £100+ million on advisors.

Of course we may benefit from an Ergotron return of cash, so in that case Sp + Cash Returned.

[yertiz] 03/4/2018 12:29

All depends on what you (or Warren Buffett or anyone else for that matter) see as fair value for GKN pre-deal. I maintain Melrose bought cheaply. There's an amount of real management to do to allow the divisions to operate effectively, and more to realize potential before selling any component on.

My take on this is that Melrose paid a price some 12 - 15% lower than 'true' value (or about £1 bn under). Great business for us shareholders which could become fantastic business if potential is realized. I still fully expect the share price to be knocking on £3 by year end.

[meanwhile] 03/4/2018 12:14

I think I may have a useful observation to make, adding to the 'constructive dialogue' to be found on this site.

Warren Buffet, another well known sage, in addition to our own, makes the comment below in his recent letter to shareholders :-

hxxp://www.berkshirehathaway.com/letters/2017ltr.pdf

"Once a CEO hungers for a deal, he or she will never lack for forecasts that justify the purchase. Subordinates will be cheering, envisioning enlarged domains and the compensation levels that typically increase with corporate size. Investment bankers, smelling huge fees, will be applauding as well."

Does anyone, in addition to myself, think that the MRO team may have succumbed to a little bit of this over-eagerness with GKN.
I always believed that, as their final acquisition, the MRO 4 would go for something above their usual nuts & bolts, maybe a bit out of their depth and would maybe pay too much.

Finally, some posters, who I refer to as 'meanwhile filterers', will not see this post. If others believe these filterers would benefit in some way, please feel free to pass the content upwards by way adding it to your own post, rather like you'd get in an upper management hierarchy.

[meanwhile] 03/4/2018 10:44

Losos,

I wish you good luck with your MRO.

I also wouldn't filter anyone, especially Minerve, who has presented a sound counter argument very well. The language, we've all heard before anyway.

Being filtered out by The Sage of the Cotswolds may, in fact, be beneficial overall. He now won't get upset, while we'll still be able to benefit from his
in-depth analysis.