Melrose Eyes £4bn Bid For Philips Lighting

A London-listed vehicle which has turned around a string of underperforming industrial businesses is examining an offer for the lighting division of Philips (Amsterdam: PHIA.AS - news) , the Dutch conglomerate.

Sky News has learnt that Melrose (LSE: 136541.L - news) is contemplating whether to join an auction of the business, which is drawing interest from some of the world's largest buyout funds.

If Melrose secures a deal to buy the Philips division, it would mark the British company's largest takeover to date, but would also represent a departure from the series of acquisitions it has made since it launched 13 years ago.

Set up by a trio of former executives at Wassall, a mini-conglomerate, Melrose specialises in identifying struggling industrial assets and improving their performance through several years of intensive operational management.

The recipe has worked at businesses such as Elster, a utility meter manufacturer, which it sold to the US industrial group Honeywell for £3.3bn last year.

Melrose's track record has earned its founders and senior executives substantial rewards but has been lauded by long-standing institutional investors, which have seen handsome returns over the last decade.

The company has tended to avoid formal auctions of assets, usually acquiring targets after pursuing bilateral discussions.

One source close to the Philips sale process said that while Melrose was examining a bid, its aversion to using levels of debt employed by private equity firms to finance transactions meant its prospects of succeeding with a bid would be lower than usual.

Other bidders for the Philips Lighting division include Apollo Management, Bain Capital (Other OTC: CGHC - news) and KKR, the buyout firms.

Christopher Miller, Melrose's chairman, said last month that the company had begun the search for a new acquisition.

"We are optimistic that a suitable acquisition will be identified to bring additional shareholder value and we look forward to inviting investors to participate in this next project in due course," he said.

Melrose continues to own Brush, a manufacturer of electricity generating equipment.

Melrose declined to comment.