UPDATE: Charter Rejects Melrose's GBP1.4 Billion Bid; Names New CEO

Engineering firm Charter International PLC (CHTR.LN) Friday rejected an improved GBP1.4 billion takeover bid from Melrose PLC (MRO.LN), and named a new chief executive charged with revitalizing the troubled company's performance in key business areas.

Melrose had returned with a 840 pence-a-share indicative proposal for the company on July 11, besting its 780 pence-a-share offer from late last month, but Charter again dismissed the industrial turnaround specialist's cash-and-share bid as "opportunistic."

Charter said that the revised proposal did not reflect its belief that the market was undervaluing the company's prospects after it issued a profit warning last month because of the poor performance of ESAB, one of its core businesses.

Charter said the bid failed to reflect its confidence that ESAB, a specialist in welding, cutting and automation, would see substantial operational improvement under its new management team.

Charter added that the bid also didn't take into account the strong performance and growth prospects of its other core business, air and gas handling firm Howden.

Charter also announced Friday that Gareth Rhys Williams, 49, had been appointed as chief executive with immediate effect. Williams was head of safety equipment manufacturer Capital Safety Group from 2008 to 2010, and chief executive of Vitec Group PLC (VTEPY) from 2001 to 2008.

"I look forward to working to drive increased performance and to explore a full range of strategic options to do whatever is necessary to maximize value for our shareholders," Williams said.

Melrose, which looks to acquire and turnaround underperforming engineering businesses before selling them on, has been circling Charter because of its recent difficulties, which included the resignation of its previous Chief Executive Michael Foster.

Melrose said Thursday its approach was in the best interests of Charter shareholders as it "delivers a proven management team with a demonstrable track record in creating value... along with an immediate 40% premium [compared to the day before its original approach]."

Jo Reedman, analyst at Singer Capital Markets, said earlier Friday said that "Melrose's approach is not necessarily a knock-out bid," and suggested a maximum price of around 950 pence-a-share if Charter were to become the subject of a competitive auction.

"We would expect the management of both Lincoln Electric Holdings Inc. (LECO) and Illinois Tool Works Inc.'s (ITW) welding businesses to be concerned about the prospect of ESAB being acquired by Melrose," Reedman added.

At 1420 GMT, Charter shares were down 1.3% to 818 pence, while Melrose shares were down 0.1% at 359 pence.

-By Michael Haddon, Dow Jones Newswires; 4420-7842-9289; michael.haddon@dowjones.com

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