Nortek shares surge after $2.8 billion merger announcement

Shares in turnaround group Melrose shot up by more than 30 per cent on Wednesday after it announced the $2.8bn (£2.2bn) acquisition of a USA heating and air conditioning company.

Shares of Nortek were last trading up almost 39% at $86.58, with a consensus analyst price target of $61.00 and a 52-week trading range of $33.85 to $92.96. They were up almost 40 percent by 1556 GMT.

Melrose, which follows a buy-improve-sell model akin to private equity, has been scouting for a deal since it sold its utility consumption metering business to Honeywell International Inc HON.N a year ago.

Nortek will become a wholly owned subsidiary of Melrose. “Melrose has been a highly successful custodian and builder of USA businesses and we are confident that we can bring that expertise to build Nortek for the long term”. Nortek Inc.is a global diversified industrial company with leading brands and innovative air management and technology-driven products for for lifestyle improvement at home and at work. The offer price of $86 per Nortek Share, net, in cash and without interest, values the issued and outstanding shares of Nortek at $1.436 billion with an enterprise value of $2.810 billion. “It’s fascinating to see that deals still get done despite Brexit”, an M&A banker said.

Business valuations may be vulnerable to uncertainty over the impact of Britain’s vote to leave the European Union, which lead to a United Kingdom recession. “Melrose is an unusual example of post-Brexit M&A. Just the fearless can manage deals in this environment”, stated the source close to Melrose. “The financial impact of Brexit is still unclear”, he said.

Finance Director Geoffrey Martin stated Melrose would think about increasing investment in automation and new machinery for Nortek’s production facilities and looking for complementary acquisitions.

The Nortek deal has an equity value of $1.44 billion, which Melrose is funding by a rights issue of new shares to raise about 1.6 billion pounds ($2.1 billion), and new debt. Bank of America Merrill Lynch (BAC.N) served as joint underwriter and joint bookrunner. The balance of the debt repayment will be funded through new debt of approximately $780 million. It emerged from Chapter 11 protection in 2010.