Knock-out Enodis bid puts engineers in focus
As Manitowoc rekindles M&A hopes by offering £916m for the catering equipment maker, analysts were picking other UK engineers that look vulnerable.
Enodis, which makes deep-fat fryers for McDonald's and Burger King, said it has granted Manitowoc due diligence access. There can be no certainty an offer will be forthcoming, the companies added.
The offer was 72% above the closing share price for Enodis yesterday, and would value the company at about 18.5 times earnings - a premium of about 55% to the UK engineering sector
This fresh bid approach was the latest twist in a long-running takeover story. In 2006, Manitowoc had provisionally offered around 220p per Enodis share, but the deal collapsed because of antitrust concerns involving the companies' ice machine businesses, which would likely have led to a forced disposal. Ice makers represent circa 20% of Enodis sales.
"Manitowoc’s persistence suggests some comfort with the competition issues," said Citigroup analyst Tim Adams.
However, the Wall Street broker's team played down hopes of other suitors emerging. Middleby, the US group that battled with Manitowoc for Enodis throughout 2006, is unlikely to re-enter the fray at a higher level and AGA Foodservice, which was previously been interested in a merger with its UK peer, has now exited the commercial sector.
As for other players, industrial conglomerates such as Illinois Tool Works, Ingersoll-Rand and United Technologies are in the foodservice equipment market but would likely have looked at a possible transaction when Enodis was in play in 2006, Citigroup argued.
Manitowoc ended 2007 with net cash of around $133mn and unused credit facilities of $241mn. Assuming a 260p per share takeout price, the deal will cost the US group about $2.14bn - leaving it with a funding gap of circa $1.77bn, about 30% of its current market cap. However, by the company's own preferred measure it has enough headroom to cover the transaction with additional debt.
"We estimate that Manitowoc would have to raise £700m of debt demonstrating that deals can be done in the current credit environment," said Merrill Lynch Mark Troman.
Troman picked out other companies in the engineering sector likely to benefit from renewed takeover activity.
Among those already on the radar, he highlighted FKI, which opened its books to peer Melrose four weeks ago after receiving an indicative bid equivalent to 84p per share, a 17% premium to the current share price. It could also face a counterbid from Blackstone, the private equity firm, which has hired bankers to examine the situation.
Companies previously in bid talks will also benefit amid hopes transactions can be revived, the Merrill analyst argued. Among these he highlighted Bodycote, whose board rejected at 344.5p bid from Sulzer in April 2007 after receiving around five indicative offers from the Swiss company. (Bodycote shares were at 203.75p today, up by 3.95%.)
Morgan Crucible received an indicative offer at the end of 2006, speculated to be from private equity and pitched 315p. And Invensys, while it has never officially disclosed a bid approach, could be an attractive target given its valuable market share in process control and rail signalling.
"As such, we think it is more likely to be a strategic target (like Enodis) rather than a financial one," Merrill told clients. "In our view, Invensys’ heavily reduced debt and pension deficits and ongoing disposals increase the chance of a bid during 2008."
