Melrose to return £730m to shareholders

Melrose Industries will return £730m in cash to shareholders from the proceeds of the sale of the buyout group’s US air conditioning unit.

News of the payout, and the promise of another possible return next year, sent shares in the FTSE 100 company almost 3 per cent higher to 162.6p in morning trading on Tuesday.

The industrial group sold its Nortek Air Management division to privately owned, Chicago-based Madison Industries for £2.62bn in April. It said at the time that it would use the money to pay down debt, reduce the pension deficit of its aerospace and car parts unit GKN and provide a payout to shareholders.

The proposed payout, equivalent to 15p a share, will be executed through a share consolidation and will require approval from shareholders.

“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 Melrose’s chief executive Simon Peckham.

The group has in the past generated substantial returns for executives and shareholders through its focus on buying underperforming manufacturing businesses, restructuring them and selling them on. Melrose stripped out central management functions and invested in new products at Nortek to help improve its profitability.

It had considered selling Nortek at the start of 2020, but the sale was delayed due to the coronavirus pandemic, which hit Melrose’s key aerospace and automotive customers hard.

The company’s share price, despite the rise on Tuesday, has remained significantly below the 245p level they were trading at early last year before the pandemic struck.

The disposal is Melrose’s largest deal since its controversial takeover in 2018 of GKN for £8bn. The £100m injection into GKN’s pension, already flagged in April, will reduce the funding deficit to about £200m.

Melrose said it continued to trade in line with expectations ahead of interim results on June 30. The group’s automotive and powder metallurgy divisions continued to benefit from the recovery in the automotive sector although the company cautioned that this was tempered by the impact of the global shortage of semiconductors.

Melrose struck a more upbeat tone than previously about the prospects of a recovery for the aerospace sector, which has been among the hardest hit from the collapse in international travel in the wake of the pandemic. It said there were some “encouraging signs” that the “start of a recovery for the [aerospace] sector is in sight”.

It also flagged the disposal of another business, Brush, for £100m last week. Brush provides turbogenerators, transformers and related power services to customers.

Peckham has previously said the group would return to look at acquisitions once the Nortek sale was finalised.