22 June 2021

 MELROSE INDUSTRIES PLC

Completion of Nortek Air Management disposal and Proposed Return of Capital of approximately £730 million (15 pence per Existing Ordinary Share)

Melrose Industries PLC ("Melrose", the "Group" or the "Company") is pleased to announce the completion of the £2.62 billion ($3.625 billion) disposal of its Nortek Air Management Division ("Air Management") to Madison Industries LLC (the "Disposal") and confirm the proposed return of approximately £730 million in cash to Shareholders, equivalent to 15 pence per Existing Ordinary Share (the "Proposed Return of Capital").  A circular seeking the approval of Shareholders in respect of the Proposed Return of Capital will be posted later today (the "Circular").

As previously announced, in addition to funding the Proposed Return of Capital, the net Disposal proceeds will be used to contribute approximately £100 million to the GKN UK defined benefit pension schemes, so that the funding deficit will be less than £200 million, as well as to reduce Group net debt, so that the leverage in the Group adjusting for the Proposed Return of Capital will be below 2x EBITDA as at 30 June 2021.

Acquired as part of the Nortek transaction in 2016, Air Management represents the latest success story in a strong track record for the Melrose strategy.  The Disposal proceeds, plus more than £700 million of cash generated by the Nortek businesses under our ownership and the retention of the Ergotron and Nortek Control businesses in the Group, means we are well placed to achieve the targeted doubling of Shareholders' investment on the Nortek acquisition.

As with previous disposals and in tune with the core Melrose strategy of value return for Shareholders, the Board considers it to be in the best interests of Shareholders to effect the Proposed Return of Capital by way of (i) a court approved Reduction of Capital, followed by (ii) a return of capital through the issue of a new class of B2 Shares which the Company intends to redeem for cash in order to return 15 pence per Existing Ordinary Share to Shareholders; followed by (iii) a consolidation of the Company's ordinary share capital in order to minimise any impact on the market price of the Company's Shares whilst ensuring Shareholders retain the same pro rata interest in the Company after completion of the Proposed Return of Capital (the "Share Consolidation"). Further details are provided below and full details will be contained in the Circular.

Trading Update

Ahead of Melrose's half year end on 30 June 2021, the Board is pleased to confirm that the Group continues to trade in line with expectations as outlined in its AGM Trading Statement published on 6 May 2021.

Both the Automotive and Powder Metallurgy Divisions have seen recovery in the automotive sector, albeit currently tempered by the impact of the global semi-conductor shortage.  While it remains too early to state with certainty, there are also some encouraging signs for the Aerospace Division that the start of a recovery for that sector is in sight. 

Pleasingly, all these Divisions have been significantly cash generative during Melrose ownership.  Indeed, despite the effects of COVID-19, since acquisition the GKN businesses have generated over £0.5 billion of total free cashflow after all restructuring costs.  As Shareholders would expect in these unprecedented circumstances, the Board is currently taking a conservative stance in the Proposed Return of Capital and the payout is in line with expectations.  However, on the assumption these encouraging sector recoveries continue, the Board expects to be able to make another significant return of capital to Shareholders next year.      

The Company also notes the disposal of Brush, a leading independent provider of turbogenerators, transformers and switchgear and associated services, last week for a net cash consideration of £100 million.   Brush is the final business to be sold from the FKI acquisition in 2008, which has been a highly successful investment for our Shareholders, providing a 2.6x return on Shareholders' initial equity, equivalent to an IRR of 29%.  We thank the Brush management team for their hard work and wish the business well in its next phase.

Simon Peckham, Chief Executive of Melrose, commented: "The Board is delighted to have completed the sale of Air Management to Madison Industries, who are committed to continuing the development of this business.  They will be a great owner and home for these assets and we wish them well. 

We have taken a conservative view for the level of the current return of capital, but if markets continue to recover, we expect to announce a further significant return next year.  For now, Melrose will proceed to return 15 pence per share to Shareholders, in line with expectations.  We believe Melrose is well positioned for the next stage of its journey." 

Further details on the Proposed Return of Capital and Share Consolidation

The Proposed Return of Capital and Share Consolidation will require approval from Shareholders at a general meeting, together with a court hearing to confirm the requisite Reduction of Capital.

Subject to those approvals, Shareholders will receive one B2 Share, with a nominal value of 15 pence, for every ordinary share held on the record date for entitlement to B2 Shares, as set out in the expected timetable below. The B2 Shares will not be admitted to listing or dealing on any exchange. No share certificates will be issued with respect to such B2 Shares and no CREST accounts will be credited with such B2 Shares.

It is expected that Shareholders who are entitled to the B2 Shares will have such B2 Shares cancelled on redemption on 31 August 2021. Cheques representing the nominal value of the B2 Shares (15 pence per share) will be despatched or CREST accounts credited with the proceeds, as appropriate, in respect of such B2 Shares on 14 September 2021.

The ordinary share capital will then be consolidated on the basis of 9 New Ordinary Shares of 160/21 pence each (the "New Ordinary Shares") for every 10 Existing Ordinary Shares held at the Record Time for entitlement to the B2 Shares and Share Consolidation, being 6.00 p.m. on 27 August 2021. The Share Consolidation will reduce the number of Ordinary Shares in Melrose which Shareholders own, but not the proportion (subject to allowance for fractional entitlements). The aim of this is to ensure, so far as possible, the market price of an ordinary share following the Share Consolidation remains approximately the same before and after the Proposed Return of Capital and to maintain comparability of historical and future per share data.

The ratio used for the Share Consolidation has been set by reference to the closing middle market price of 156.35 pence on 18 June 2021 (being the latest practicable date prior to completion). Fractional entitlements arising from the Share Consolidation shall be aggregated and sold in the market on behalf of the relevant Shareholders. The aggregate proceeds of sale of such fractional entitlements, net of commission, shall be donated by Melrose to charities chosen by the Board.

Following the Share Consolidation, application will be made for the New Ordinary Shares to be admitted to the Official List and to trading on the main market for listed securities of the London Stock Exchange, with dealings expected to commence on 31 August 2021 ("Admission"). The New Ordinary Shares will be equivalent in all material respects to Existing Ordinary Shares, including their dividend, voting and other rights. The Company will apply for the New Ordinary Shares to be admitted to CREST with effect from Admission so that general market transactions in the New Ordinary Shares may be settled within the CREST system. If Shareholders currently hold Existing Ordinary Shares in uncertificated form, the Existing Ordinary Shares under ISIN GB00BZ1G4322 will be disabled by 8.00 a.m. on 31 August 2021 and on, or soon after, 8.00 a.m. on 31 August 2021 their CREST account will be credited with New Ordinary Shares under ISIN GB00BNR5MZ78.

Unless otherwise defined in this announcement, defined terms used have the meaning given to them in the associated circular that will be posted to Shareholders shortly.

Expected timetable of principal events:^{1 2} 

Notes:

¹ All references in this announcement to times are to London time unless otherwise stated.

² The timetable may be subject to change. If any of the above times and/or dates should change, the new times and/or dates will be notified to the Financial Conduct Authority and announced to Shareholders through a Regulatory Information Service.

* A 14-day notice period for the General Meeting is considered by the Company to be appropriate given the strong Shareholder support (99.89%) received at the General Meeting held on 6 May 2021 for the disposal of Air Management. Further, a Court approved Capital Reduction is required prior to making the Return of Capital to Shareholders, and so the notice period of the General Meeting takes into account the additional time required in the timetable for the Court Hearing, together with the Court's summer recess.      

** This date is subject to changes that might be imposed by the Court.

*** This date and all subsequent dates will depend on, amongst other things, the date on which the Court confirms the Capital Reduction and the period of time required to obtain registration of the Court Order by the Registrar of Companies. Based on current guidance from Companies House, Melrose has assumed filing of the Court Order will take 14 calendar days from the date of the Court Order. If in fact Companies House re-introduces a same-day service or otherwise expedites or delays the filing, the Company may change the timetable and will announce such change through a Regulatory Information Service.

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