Christopher Miller, chairman of Melrose, noted yesterday that “almost
£1bn of cash will have been generated from McKechnie Dynacast
which were acquired for £429m in 2005.”

The money, worth about 70p a share, will be returned to shareholders through a
buyback. All the cash will be paid to Melrose on completion of the deal – so
there is no deferred payment to wait around for.

Another nice part of the transaction for shareholders is that Melrose will
retain all the cash generated by Dynacast up to completion of the deal,
expected in August. This could be as much as $30m (£18.3m)

The buyback will ultimately see about 20pc of Melrose’s equity being
repurchased, with analysts calculating that the sale and reduction of shares
could be dilutive to earnings by a few percentage points.

The shares are trading on a December 2011 earnings multiple of 11.4, falling
to 10.3 in 2012. This looks cheap when compared with engineering companies
that are separate listed entities – and there is the dividend attraction as
well. The current prospective yield is 3.7pc, rising to 4pc in the year to
December 2012.

Melrose’s remaining businesses have strong exposure to the power generation
and oil and gas spaces, which is positive because of the global structural
shortage of energy.

Businesses currently owned by Melrose include Acco, which makes cranes and
hoists, and Brindon, which makes wire ropes. It also owns Brush
Turbogenerators, the world’s largest independent manufacturer of
turbogenerators, as well as Harris Waste Management, which processes scrap
metal.

In its recent trading update, Melrose revealed a good start to 2011 –
especially in energy.

Brush reported that orders were 15pc higher on a year-on-year basis and
Melrose’s Hawker Siddeley Switchgear unit noted that orders were up 50pc
ahead of last year.

The shares were first recommended at 154p on September 4, 2009, and they are
now 118pc ahead compared with a FTSE 100 up 21pc.

The rating on the shares remains buy.

The company is Melrose plc, listed under the symbol MRO, not Melrose
Resources, which is listed as MRS.