Melrose Mulls $3 Billion Sale of Nortek Air Businesses

(Bloomberg) --

Melrose Industries Plc is preparing to sell the bulk of its Nortek division, in what could become the British buyout specialist’s biggest divestment in more than four years, people with knowledge of the matter said.

Birmingham-based Melrose is working with advisers to weigh options for the division’s air businesses, which sell products including ventilation and cooling systems, according to the people. It is seeking to raise more than $3 billion from the sale, the people said, asking not to be identified because the information is private.

Shares of Melrose were up 1.6% at the close Tuesday in London, giving the company a market value of 11.7 billion pounds ($15.3 billion). They earlier rose as much as 3.8%.

Melrose bought Nortek Inc. in 2016 for $2.8 billion including debt. The original Nortek businesses’ adjusted operating profit has risen 40% under Melrose’s ownership, it said in a September investor presentation.

Honeywell Deal

The operations Melrose is planning to divest include the Global HVAC business, which makes large heating and air-conditioning systems installed during residential construction, as well as Air Quality & Home Solutions, which sells products like range hoods and bathroom ventilation fans, the people said. Both are housed in Melrose’s Nortek Air & Security division.

It plans to hold onto its Security & Smart Technology business, which make residential security systems and smart-home products, according to the people. That part of the division has struggled due to the impact of tariffs and intense competition.

A deal could rank as Melrose’s second-biggest disposal of all time, according to data compiled by Bloomberg. It would trail only the 3.3 billion-pound sale of Elster, a maker of gas and water meters, to Honeywell International Inc. in 2015, the data show.

No final decisions have been made, and Melrose could decide to keep the assets for longer, the people said. A representative for Melrose declined to comment.

GKN Turnaround

A divestment would allow Melrose to focus on turning around the operations of British aerospace and automotive firm GKN Plc, which counts Airbus SE as its biggest customer and was acquired in a controversial 2018 deal. Melrose, which listed on the U.K. stock market in 2003, buys industrial companies and improves the way they’re run before selling them.

Melrose said around the time of its hostile bid for GKN that it could sell Nortek. It said in early 2018 that Nortek had been responsive to the “Melrose methods” and that it was shaping up to be Melrose’s “fastest ever improvement.” That led the company to say it could sell Nortek earlier than expected.

Citigroup Inc. wrote in a research note Tuesday that a divestment would be a “significant positive” as it would allow Melrose management to further focus on the turnaround of the GKN assets. It would also allow the company to reduce its debt levels or return cash to shareholders through a special dividend, Citigroup analysts including Edward Maravanyika wrote.

Melrose was exploring the sale of GKN’s powder metallurgy unit in 2018 before halting the process due to disappointing offers, according to people familiar with the matter. While buyout firms are still interested in the business, which makes automotive and industrial components from powdered metal, there are no current plans to relaunch the divestment in the near term, the people said.

--With assistance from Christopher Jasper and Joe Easton.

To contact the reporters on this story: Aaron Kirchfeld in London at akirchfeld@bloomberg.net;Dinesh Nair in London at dnair5@bloomberg.net;Jan-Henrik Förster in Zurich at jforster20@bloomberg.net;David Hellier in London at dhellier@bloomberg.net

To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, Matthew Monks, Christopher Jasper

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