Manufacturing buy-out specialist Melrose Plc (MRO.L) on Monday said that it is in talks to buy German engineering firm Elster Group SE (ELT). Confirming the talks, Elster said Melrose would make an all-cash offer of $20.50 per American Depositary Share, valuing the company at around $2.3 billion.
Reports emerged Sunday that Melrose was willing to offer up to $20.50 per share, while Elster was looking for $22 per share.
Elster is one of the world's largest providers of gas, electricity and water meters, gas utilization products and related communications as well as networking and software solutions.
Elster's products and solutions measure and control the supply of electricity and gas and water in traditional and Smart Grid' markets in 130 countries worldwide. The company generated revenues of $1.87 billion in 2011.
According to a report, conglomerates Germany's Siemens AG (SI) and Sweden's ABB (ABB) could also be interested in Elster.
Elster has agreed to due diligence, which is currently in progress. Melrose plans to fund the potential transaction through a combination of new debt and a rights issue.
Melrose has made it clear that it would not proceed with the transaction without a recommendation from the Board of Elster as well as a hard irrevocable undertaking from Elster's largest shareholder, Rembrandt Holdings S.A. Rembrandt Holdings is owned by funds advised by CVC Capital Partners.
Elster is evaluating the proposal. "There can be no assurances that any transaction will occur, or if it does, what the terms of such transaction would be," the firm added.
Rembrandt Holdings has inked an agreement with Melrose to tender its entire stake in Elster into Melrose's offer, upon some conditions, if such an offer is announced and completed.
Rembrandt may have to pay Melrose a termination fee if Melrose's offer is unsuccessful and if Rembrandt accepts another offer for its stake in Elster thereafter.
Melrose has reportedly been talking to Elster for about three weeks. The UK-based firm last year failed to win the bid for engineering group Charter International, losing it to Colfax Corp. (CFX).
MRO.L is currently trading at 386.30 pence, up around 1 percent from the previous close, on a volume of 63,908 shares.
ELT closed on Friday at $16.40, up from the prior close of $15.93, on a volume of 400,200 shares.
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