Bid battle looms as Novar rejects Melrose

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The Independent Online

The building supplies group Novar set the scene last night for a full-blown takeover battle by serving notice that it would reject the £650m bid being lined up by Melrose, the shell company led by a former Hanson executive.

The building supplies group Novar set the scene last night for a full-blown takeover battle by serving notice that it would reject the £650m bid being lined up by Melrose, the shell company led by a former Hanson executive.

A source close to Novar, which recently changed its name from Caradon, said: "You can rightly assume we don't find the price range or the structure of the bid attractive."

Melrose, a tiny AIM-listed company set up specifically to look for companies to buy, has said that it intends to bid between 140p and 150p a share for Novar using a mixture of cash and stock. It is expected to launch its offer towards the end of this week.

In a pre-emptive strike over the weekend, Novar criticised the structure of the bid, which could result in a £100m profit for the four directors of Melrose, who include the former Hanson executive Chris Miller and the director general of the Institute of Directors, Miles Templeman.

The four directors hold "incentive shares" in Melrose which would entitle them to 10 per cent of any increase in the value of Novar over the next three years because of the way the bid will be funded largely using Melrose stock. If Novar doubled in value they would net £70m and if it trebled the payout would be £110m.

Last night, a Melrose spokesman hit back at Novar over its attack on the incentive scheme. "If the four directors turn the business around then, yes, they will do very well but so will the rest of Novar's shareholders. This is a private equity-style deal but the difference is that it is being carried out through a publicly-quoted company. What Melrose will ask shareholders to do is back its management team against the new management team at Novar."

In response to Melrose's announcement last Thursday that it was considering a bid, Novar brought forward the appointment as chief executive of Stephen Howard, who had not been due to join until next January.

Novar, which specialises in aluminium extrusions and temperature control systems, is chaired by the former Enterprise Oil chairman Sir Graham Hearne. Active Value, the investment fund which specialises in agitating for management change and which holds just under 17 per cent of Novar, is likely to play a pivotal role in the bid battle.

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