Onex Corp and the Canada Pension Plan Investment Board are considering a $4.5 billion takeover bid for UK car parts maker Tomkins Plc as the weak British pound encourages two more North American investors to snap up assets.
The possible takeover -- Tomkins said in a statement on Monday it had received a proposal from the consortium -- sent the company's shares up 31.1 percent to 301.9 pence by early afternoon in the London session, valuing Tomkins at about 2.7 billion pounds ($4.1 billion).
The stock hit a high of 314 pence, its highest point since 2006 but below the 325 pence cash offer being considered by the potential buyers.
Gerald Schwartz, chief executive of Onex, Canada's biggest private equity firm, said in May that he expected the current economic cycle to yield attractive investment opportunities for Onex. At the time, the company had about C$1 billion ($950 million) in cash and about C$3.9 billion of third-party uncalled capital for acquisitions.
Shares of the company were up 5 Canadian cents at C$25.12 on the Toronto Stock Exchange on Monday morning.
The Canada Pension Plan Investment Board (CPPIB), the country's second-biggest pension fund manager, oversees C$127 billion in assets and was one of the world's top private equity investors over the past year.
We note the announcement that was made by Tomkins earlier this morning about the proposal they've received from Onex and CPPIB. But we have no further comment at this time, Emma Thompson, vice president of investor relations at Onex, told Reuters. A CPPIB official would not comment.
Tomkins said on Monday it had opened its books to the consortium and that due diligence was at an advanced stage. It also said the bidders reserved the right to reduce their offer price in the event that the company's board agrees.
Collins Stewart analyst Mark Wilson said Tomkins' first-half results justified the 325 pence level of the approach and said he wouldn't be surprised if the company attracted interest from other suitors, both financial and industrial.
But he added: Given how far down the line this already appears to be, anyone else who's interested in the company, really time is against them.
CROSSING THE POND
North American suitors have acquired a number of British engineering companies so far in 2010.
Most recently U.S. conglomerate Emerson Electric acquired power supply systems maker Chloride , URS Corp bought engineering consultancy Scott Wilson Group and Valmont Industries acquired Delta, an industrial engineer.
The UK has good global companies with strong positions in niche markets, trading at attractive valuations compared to its global peers, said Numis Securities analyst Scott Cagehin, adding that their attractiveness is helped by sterling's weakness.
Take your pick for the rest of the sector as we can make a case for most, Cagehin said.
He points to UK engineering firms Charter , IMI , Spirax-Sarco and Rotork as being possible targets.
Tomkins, which is being advised by JP Morgan Cazenove, already has a Canadian connection through its CEO, James Nicol. He served as chief operating officer at Canadian auto-parts company Magna International before joining Tomkins.
Tomkins also gave an update on its performance on Monday, saying it expected to post adjusted operating profit of $290 million for the first six months of the year, boosted by stronger demand from car makers for power transmission components and systems.
Analyst Xavier Gunner at brokerage Arbuthnot said he expected consensus earnings estimates to rise as the company's first-half operating profit looks ahead of schedule compared with current estimates.
The company said it expected sales and margins to be weaker in the second half of 2010 than in the first half due to economic uncertainty.
(Editing by Peter Galloway)