McNally in ‘friendly’ takeover of UK firm

McNally Bharat Engineering Co has launched a “friendly” takeover bid of the London Stock Exchange-listed Specialist Energy Group Plc (SEG), which would take its existing stake in the British company to 41.69% from the current 25.27%.

The deal, if approved by the shareholders, would give Kolkata-based industrialist Deepak Khaitan-owned McNally control over SEG.

The acquisition is being routed through MBE Mineral Technologies Pte Ltd, McNally Bharat’s fully owned subsidiary, which is being issued 10 million shares at £5 million, or 50 pence a share, at 108% premium to the April 4 closing price of 24 pence.

MBE Mineral is the Singapore-based special purpose vehicle earlier used by McNally to acquire the coal and mineral technology business of KHD Humboldt Wedag.

MBE has been mopping up shares of SEG for quite some time, beginning with a little over 10% stake in 2010.

The Indian company is required to make an open offer under the Rule 9 of Takeover Code as its stake would rise to 41.69% following the subscription.

But Khaitan has received a waiver for the open offer and has proposed induction of three McNally directors on SEG’s board — himself, CFO Prabir Ghosh and independent director Subir Dasgupta, according to takeover disclosure made by SEG with London Stock Exchange.

Khaitan won’t be the chairman though. “Following the issue of the new ordinary shares, Christopher Every and Ronald Emerson will resign from the Board while the non-executive chairman, chief executive officer and finance director will remain,” the document said.

SEG has called a shareholders’ meeting on April 30 to approve the proposal and the Board has decided to support it. “The directors, who have been so advised by Akur Partners LLP and FinnCap Ltd, consider that the transaction is in the best interests of the company and the independent shareholders overall. The directors believe that the transaction will provide the opportunity to enhance the operational and commercial performance of the company through the relationship with MBE,” the takeover disclosure said.
SEG, which is yet to announce its results for 2011 results, expects revenues to be around £32.1 million with operating profit to be £2.5 million.

Khaitan is also using this deal to make SEG to take a 20-24% stake in MBE Cologne Engineering GmbH, a wholly owned subsidiary of MBE which manufactures specialist machinery and components for material handling and power generation sectors.

But more than operational and commercial aspects, what drove SEG, a maker of electric motors and pumps, to accept the offer from the Indian company, is the financial aspect.

“Funds raised to be used to settle existing derivative instruments with the company’s existing bank enabling it to re-bank with Standard Chartered,” SEG said.

The company, apart from the takeover proposal, is also seeking shareholder approval for £12 million borrowing facilities from Standard Chartered and MBE.

Operationally, both the companies stand to gain. "Through McNally Bharat, the company will have increased access to key growth markets in particular India, Africa and South America; through SEG’s Hayward Tyler subsidiary, McNally Bharat will have improved access to North American and Chinese markets; MBE Cologne to deliver operational benefits to assist in enhancing Hayward Tyler’s procurement and supply chain management,” SEG said in its letter to the shareholders.

SEG had earlier, through subsidiary Hayward Tyler Group Ltd, won an order worth almost £3 million to supply boiler circulation pumps to Bharat Heavy Electricals Ltd.