Enodis investors fight for cash return

Enodis is set to come under growing pressure from hedge fund investors to make disposals and return cash to shareholders after takeover talks at the kitchen equipment maker collapsed last week.

Hedge funds, including Polygon, Citadel, Deephaven and Mellon HBV, control more than a quarter of Enodis, and a number are keen to seen the company return cash to shareholders as soon as possible. Few expect Middleby Corporation, the US group, to raise its 195p a share bid before the noon today "put up or shut up" deadline imposed by the Takeover Panel expires.

"I think you will see a number of hedge funds put pressure on Enodis management to make disposals and give back money to investors via share buy-backs or special dividends once the Middleby bid lapses," said one hedge fund manager with a stake in Enodis. He added: "If management felt that Manitowoc's 210p offer undervalued the company, then they should be keen to initiate a buy-back programme with the shares at current levels."

Enodis, which makes kitchen equipment for fast-food chains like McDonald's, Subway and Burger King, saw its shares close at 169p on Friday. Middleby kicked off the takeover battle for the group in May with a 195p-a-share bid. This was rejected by the Enodis board, as was a 210p counter-offer from the Wisconsin-based Manitowoc in June. When Manitowoc returned with a 220p proposal, it allowed the US group to conduct due diligence. This process came to an end last week when discussions were abandoned on the grounds that a tie-up would face regulatory hurdles.

Analysts said they were not surprised to hear hedge funds calling for Enodis management to return cash to shareholders. The company could pay for this by taking on extra debt or by making disposals, they said.

Enodis refused to comment yesterday on whether such a scenario is likely. A spokesman for the company said: "Enodis is aware of the interests of its shareholders and is totally focused on delivering maximum value for them."

Merrill Lynch believes that Middleby needs to make a major acquisition to maintain its growth and that it has few choices available other than Enodis. However, the broker suggested in a research report published on Friday that it may struggle to finance anything above its original 195p proposal. Middleby is less than half the size of Enodis, while the UK group's management are seen as unwilling to recommend a bid below 220p.