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A specialist manufacturing investor listed on the London Stock Exchange is in talks to acquire a global engineering group, also quoted on the main market, for approximately £478 million.

The proposed deal sees London-headquartered investor Melrose plc buy Loughborough-based engineer KFI Group, following which it will undertake a refinancing of KFI. The move is set to drive the performance and efficiencies of its latest investment, to up shareholder value.

In order to fund the cash element of the deal, Melrose has issued 200 million shares at 145p each, raising approximately £291million. The company has also arranged a £750 million facility – underwritten by Lloyds TSB, Barclays, Royal Bank of Scotland, JP Morgan plc, HSBC and Commerzbank – to refinance KFI and Melrose’s existing borrowing facilities.

Melrose chairman Christopher Miller says that in such challenging financial times, the acquisition is a tribute to the robustness of the Melrose model.

Gordon Page, chairman of FKI, echoes: “In difficult markets, the provision of a robust and flexible financing package significantly de-risks funding requirements whilst providing enhanced prospects for growth.”

The acquisition follows Melrose’s 2007 disposals of McKechnie Aerospace for $855.6 million (£431.3 million) in March, and McKechnie PSM for $58 million (£29.2 million) in May, and the bolt-on acquisition of Techmire through Melrose portfolio company Dynacast for C$5.2 million (£2.5 million).

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