Melrose Industries Share Discussion Threads

[meanwhile] 11/7/2016 10:56

I have 2 separate thoughts today :
(1) If the Nortek deal goes ahead, I expect further acquisitions to add to Nortek. This one doesn't look big enough on its own to satisfy the bosses.
(2) There is idle talk (no more) of a possible counter-bid. Apart from this, the deal could fail for other reasons. Holders who have just sold the shsres + rights, will have done well if the deal fails and the shares fall back.

[meanwhile] 08/7/2016 17:46

Good luck then, Eipgam, with any new investment.
I've decided to invest in the new shares in the hope that they will settle in a bit higher than current calculations predict. At around 120p they will look cheap to the more casual investor and I might squeeze a bit more profit out before I sell.

[eipgam] 08/7/2016 16:15

That's me out now.... I have been here since the CHTR bid was abandoned a few years ago and have done very well... will watch with continued interest.

Thanks BoD of MRO

[steeplejack] 07/7/2016 15:48

Many,many years ago a bunch of foreign exchange cognoscenti advised that technical analysis was the best way of forecasting currencies.Just when everyone is talking about 2$ to £ say,the currencies turn turtle and head in the other direction.All I know is,sterling is weak right now and there doesn't seem rhyme or reason why it should strengthen .I'm very pleased that Melrose have chosen the USA to make an acquisition and quite clearly so are the institutions that time and time again provided backing for Melrose projects.It doesn't really matter what private investors think,I wouldn't be surprised if many failed to fully take up their rights,a 12 for 1 is a heavy cash call so the institutions are like to be treated to a small rump in due course.

[cisk] 07/7/2016 10:56

I concur the uk exit from the eu will put far more pressure on the eu and could lead to its eventual breakup, or massive watering down. That's why my hunch is that the pound will continue to fall but then recover, just because it will be seen as being safer than the euro or its fragmented remnants. Anyway, that's a digression away from mro.

I'll keep watching with interest as we'll see some great volatility in the coming weeks.

[sogoesit] 07/7/2016 10:17

Good summary, Cisk; interesting.

Agreed that USD denominated earnings preferable for foreseeable future.
But, I think this is also due to a steer away from Eurozone risk.
The DAX, MIB and CAC40 have underperformed the FTSE-100 since Brexit. The DAX & CAC40 have tracked the FTSE-250 give or take but the MIB has also underperformed the 250 (UK predominantly) index.

The next crisis in Eurozone is likely to be in the Italian Banks for which Renzi is attempting to get a waiver of the state bail-out rules from Brussels. There is a constitutional referendum upcoming in October and "5-Star" have now passed Renzi's party in the polls. "5-Star" is calling for a referendum on exiting the Euro.

When (yes, when not if) this blows up it could lead to Eurozone collapse or Germany's hegemony and who would want the latter?
[With Brexit EU loses 15% of its GDP and 40% of its military capacity]

Good luck.

[patientcapital] 07/7/2016 09:02

https://www.tddirectinvesting.co.uk/help/faqquestions/what-is-a-rights-issue/

[ursus] 07/7/2016 08:56

ecoover - you've had the rights issue mechanics explained to you by sogo. If you still don't understand, you'd do best to keep away...

[ecoover] 07/7/2016 07:12

Share price £6 , soon will be 1 885 mln of shares , this means Mcap £11.3 bln. Wow !!! It will crash .

[steeplejack] 07/7/2016 00:35

I agree other than the belief that sterling will be seen as a "safe haven",those days are long gone.

[cisk] 06/7/2016 23:21

All

There is no doubting the provenance of the management of MRO. However I'm totally surprised by the markup in the share price today.

A few things to bear in mind:
1. The UK market clearly favours businesses with earnings predominantly in USD (of which MRO would be one) with the current FX rate. Is GBP oversold? Who knows. If the current situation is a precursor to european breakup or at least watering down, then the pound will be seen as a safe heaven and rise. If not, will it continue to fall? I don't know. But it could be that much of the gains due to GBP decline have already been priced in. But the market is clearly favouring companies with predominantly US earnings.

2. The US will have its own demand stalling due to impending elections. Trump, whilst still behind in the polls, could gain on Hilary and the election could be finely judged. Who trusts opinion polls. Regardless I would factor in a loosening of demand across the US economy in the run up to the election.

3. US house prices have done well over the past few years. I closely monitor prices in LA for personal reasons and have certainly recently noted an increase in inventory and softening of prices. Is this nationwide? I don't know. But something to be aware of.

All these factors, plus MRO acquiring a consumer-facing brand (in which they are less experienced in) makes me think that the current share price is ahead of reality and pricing in perfection for the next few years.

[ecoover] 06/7/2016 20:51

Who is buying and what is the point in buying now if after the deal the price will plummet.

[eipgam] 06/7/2016 19:48

Yes... I was somewhat sceptical when he said his price... but there it is in black and white in the chart above!

As I said first thing this morning... well done!

[sogoesit] 06/7/2016 19:05

Thanks Cisk; take your point & agree the risk (also see below).

ecoover: you will have 13 shares instead of 1.
(Of course the ex-rights price will "dive").

Note that:
at 95p they raise £1,654.5m
at $1.3/£ they buy Nortek for £1,054.7m
they raise $780m (£600m) in debt and they repay $1,392m (£1,070.8m) with that and the £600m excess from the capital raise leaving them with £128.9m surplus for expenses etc. etc. (if my calcs. are correct).

Difference between 95p and ex-rights is the value attributable by market to Brush + cash and a view on future value delivered (in excess of 95p).

I think it was Meanwhile who identified the proper price post announcement of the deal.

[ecoover] 06/7/2016 18:26

If ex-right price is 132p why so much rise today . When new shares will be tradable it means share price to dive.

[cisk] 06/7/2016 17:04

Sogosit,

My comments were based without any knowledge of fwd fx hedges. Of course they may well have hedged the entire purchase price, but $2.2bn is a lot to hedge and no doubt would be costly if the deal didn't go through.

That was the background to my comment.

I'm a little disappointed I sold, but tomorrow's another day. As I said I'm still a fan of the business, but don't really have any desire to own a us-facing consumer business - particularly one in the US but listed in the UK.

No doubt they will make a good job of it though...

[brain smiley] 06/7/2016 16:23

So much for UBS saying a deal was priced in and Melrose was worth 425.

[sogoesit] 06/7/2016 15:43

Apart from being happy to be called a Little Englander (although an immigrant myself) to have voted for sovereignty over our own destiny and having worked, lived & done business in over 20 countries in my career (5 of which were EU countries) my blinkered small-minded view on the Nortek acquisition is that it will turn MRO into a US domestic focused business with a net revenue stream in USD.

This will mean the share price will be affected both positively, or negatively, by forex. However, I don't understand Cisk's view that, from today, it will make the turn around task "over 10% more difficult". I would be amazed if astute management, having bid for a USD based domestic business, would not have forward contracted or hedged the equity capital part of the financing to mitigate or fix it. Logically moreover, the debt financing will be fixed in USD.

Given that, and going by management's statement that 2017 will be accretive, at $1.30/GBP it looks like a 95p rights price will give break-even at a P/E of 20.
It will probably take a few years longer to have growth but management's history indicates that we can look forward to a growth IRR of better than 20%.
If cable is less than $1.30 then that position, obviously, improves.

ali47: it's a full rights issue to shareholders on the register at the date mentioned. Of course, the rights will also be tradeable, and valued accordingly. There will be 12 times more new shares in issue so the total value of the company remains equivalent.
At the current share price of around 580p the theoretical ex-rights price by my reckoning is 132p so 95p is a discount of 28%

[ali47fish] 06/7/2016 14:51

fir thsoe like me who dont understand all the details- is the right issue open to all shareholders- i note the price is at a big discount- please anyone can you comment?

[steeplejack] 06/7/2016 13:44

Founded in 1967 and headquartered in Providence, Rhode Island, Nortek Inc. is a global diversified company with leading brands and innovative, technology-driven products and solutions for lifestyle improvement at home and at work. Nortek operates within five reporting segments:

Air Quality & Home Solutions
Residential & Commercial HVAC
Custom & Commercial Air Solutions
Security & Control Solutions
Audio, Video & Control Solutions
Ergonomic & Productivity Solutions

Targeting a broad array of residential and commercial applications, Nortek’s offerings include audio/video and security solutions, digital display mounting solutions, ventilation products such as range hoods and bathroom fans, heating and cooling products, and air management systems. The company’s key markets include residential and commercial remodeling and replacement, residential and commercial new construction and manufactured housing, as well as the personal and enterprise computer markets.

[meanwhile] 06/7/2016 10:36

Deadly,
I have just arranged, with the UK government, for you to stay in the EU in the role of a 6th President of the Union when the rest of us leave.
I think you'll fit in there very well.

[cisk] 06/7/2016 10:24

Whilst I really like this company and the management the share price seems to have got ahead of itself recently - it will take 2 to years to turn round any acquisition and I think their target sells into consumer markets - they have traditionally bought / sold industrial companies so it seems a little different for them.

Also personally I'm not really looking into ploughing a lot of cash back into the market at the moment, so decided to sell my remaining holding with a view to buying back in once the dust has settled. Who knows when / if that will be...

Rather keep some powder dry - it seems like things will get a lot worse rather than better in the short to medium term.

Also there are a lot of cheap engineering companies out there at the moment - likes of GKN, Senior etc, share prices so depressed. Who knows what's going to happen...

[cisk] 06/7/2016 10:02

anyone any thoughts on the target?

with the pound on its back surely it's just made their job over 10% more difficult to turn it around?

and with the share price up nearly 30% that's a huge amount of value creation already priced in...

Thoughts welcome.

[sogoesit] 06/7/2016 09:55

Indeed, appreciated all your input Meanwhile.

Initially this looks like a debt re-structuring deal.
Nortek paid out $100m on $1,392m of debt in 2015; that's a whopping 7.2%.
Large room for improvement given that in 2014 MRO's USD debt was at Libor +1.30% to Libor +2.25%.