Melrose pays another £100m into GKN pension pot with Nortek sale

The buyout specialist Melrose is putting another £100m into engineer GKN's pension pot, fulfilling a key takeover pledge following a major disposal. The FTSE 100 company is in line to make $3.6bn (£2.6bn) by selling its air conditioning business Nortek Air Management to US specialist Madison Industries, it said on Monday. The deal leaves it with cash to spend on GKN pensions, dividends and debt repayments and Melrose is also expected to look for a major new purchase to strengthen its portfolio. The deal is "positive for the shareholders for a number of reasons – crystallising value, a now simplified, faster-growing portfolio and further validation of the Melrose model", said analysts at JP Morgan. Founded in 2003 by David Roper and Christopher Miller, Melrose's operating model involves buying lagging manufacturing businesses and running them for three to five years before selling them on at a profit, under the mantra 'buy, improve, sell". The strategy has proved lucrative, with total shareholder returns outperforming the FTSE 100 roughly 14 times, according to its most recent annual report. In 2017 its four top directors shared £160m worth of shares from a long-term incentive bonus payout. Melrose said it had doubled Nortek's margins from 8.6pc to 15.3pc and more than doubled profits to £188m. It has also helped it develop technology to cool air at data centres, cutting water and energy usage. Simon Peckham, the chief executive, said: "We are continuing to show that it is possible to make great returns for shareholders, while looking after pensioners and answering the environmental demands of the modern world." JP Morgan analysts predicted that the £2.6bn Nortek sale could lead to a 10p a share payout for Melrose shareholders. Its shares have struggled during the pandemic, down more than 30pc since last February. They fell before closing up 0.7pc at 180.1p.