By Alex MacDonald
LONDON-- Honeywell International Inc. said Tuesday it has agreed
to buy German-based energy and water business Elster Group GmbH
from the U.K.'s Melrose Industries PLC for GBP3.3 billion ($5.1
billion) in cash.
The purchase is in keeping with Honeywell's aim to expand its
metering business into high growth product areas and regions. It
also fits with the company's strategy to grow its business through
mergers and acquisitions. Although the company's pace of M&A
activity had slowed considerably over the past year, Honeywell said
recently it planned to spend $10 billion on M&A through
2018.
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 at the end of
last year and employs about 6,800 people in 39 countries, including
the U.S., Germany, U.K. and Slovakia.
The deal, which includes the transfer of GBP900 million of
pension liabilities to Honeywell, is forecast to close in the first
quarter of 2016, subject to approval from Melrose shareholders and
regulators. Honeywell said the deal wouldn't have any impact on
this year's full-year earnings guidance and would only be slightly
dilutive to its earnings-per-share the following year.
"We expect that energy efficiency initiatives and mandates and
the increased need for natural resource management will drive
meaningful and sustained growth for Honeywell in the metering
segment," said Honeywell Chairman and Chief Executive Dave Cote.
"This acquisition will allow...numerous cross-selling opportunities
for existing Honeywell technologies." It will also offer a new
platform for acquisition targets, Mr. Cote said.
For Melrose, the deal represents a significant return on
investment since it first acquired the business in August 2012 for
GBP1.8 billion. Melrose, which focuses on turning around
manufacturing businesses for a profit, said it has generated a 33%
internal rate of return within the three years since acquiring
Elster.
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.
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 Melrose Chairman Christopher
Miller.
Melrose shares were up by around 10% midmorning.
Investec Securities analyst Michael Blogg said: "We see this as
an excellent outturn" for Melrose.
Melrose also reported Tuesday a 14% rise in first half net
profit from a year earlier and declared an interim dividend of 2.8
pence a share, in line with 2014.
Write to Alex MacDonald at alex.macdonald@wsj.com
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