FTSE 100 engineering business Melrose Industries (MRO) plans to hand investors a huge cash windfall after selling its Nortek Air Management business. The company has said that it wants to use the proceeds to pay down debt and reduce a UK-based pension scheme deficit, but that it will also reward shareholders by returning around £730 million in cash to them.
The news saw Melrose shares rally, the stock moving around 2.5% higher to 162.18p, making it one of the biggest blue-chip gainers.
Melrose specialises in acquiring and turning around underperforming businesses before selling them on. It struck a deal to sell Nortek in April in a £2.62 billion deal. Melrose's current return plans equate to around 15p per existing ordinary share for shareholders, the company said, adding that there were some encouraging signs for its aerospace division after the coronavirus pandemic hit it hard.
MORE CASH FOR SHAREHOLDERS
If this recovery continues it opens the door to potential additional shareholder cash returns down the line. ‘We have taken a conservative view for the level of the current return of capital, but if markets continue to recover, we expect to announce a further significant return next year,’ said chief executive Simon Peckham.
The aerospace division chalked-up a modest profit in the first quarter of 2021 compared with a loss last year, helped by cost cuts.
On its automotive side, Melrose admits that business continues to be squeezed, not least from the global shortage of microchips that power today’s electronics-heavy vehicles.
Melrose shares lost nearly 26% of their value last year and have fallen a further 9% so far in 2021, based on the current share price.
The capital return and accompanying share consolidation, through which the return will be executed, will go to a shareholder vote in the coming weeks.
