Look Out Nortek, Here Come the Lawyers

Acquirer Melrose Offers a Peek at Its Plans

The ink is barely dry on their agreement to be acquired by Britain’s Melrose Industries PLC, and already Nortek Inc. finds themselves the subject of multiple investigations by several major law firms who have publicly notified shareholders this deal may not be a good one for them. It is not clear if these law firms intend to take action yet, but if so, it could be a complicating factor in the transaction.

See who is stepping up to investigate Nortek…

A glowing report in the U.K.’s Alliance News (AN) talked about how Melrose purchased Nortek and in so doing “replenished its operations.” It seems, AN says, that Melrose had recently sold off Elster Group, an energy metering business, to America’s own Honeywell Inc. for a handsome profit. But the financial firm was left with only one operating company, an electricity generating company called Brush, and needed to replenish its portfolio. Hence, the Nortek acquisition.

But a scan of major news services reveals an impressive array of law firms virtually falling all over themselves to rush announcements out to the media notifying shareholders that the deal is under investigation and may not be in shareholders’ best interest. We lost count of the number of firms making announcements – but the ones we saw included some well known, and feared, plaintiffs bar firms.

A small sampling includes (in no particular order):

• WeissLaw LLP – “…investigating possible breaches of fiduciary duty and other violations of law by the Board of Directors of Nortek Inc.”…”…investigation whether NTK’s Board acted to maximize shareholder value prior to entering into the agreement…”
• Harwood Feffer LLP – “…investigating potential claims against the board of directors of Nortek, Inc.”
• Ryan & Maniskas, LLP – “…investigating potential claims against the board of directors of Nortek Inc”….”concerning possible breaches of fiduciary duty and other violations of law…”
• Former SEC Attorney Willie Briscoe and Powers Taylor LLP – “…investigation centers on whether Nortek’s Board of Directors is acting in the shareholders’ best interest, whether the board is properly negotiating a higher share price for the shareholders, and whether the board has employed an adequate process…”
• Brower Piven – “…investigation into possible breaches of fiduciary duty and other violations of state law by the Board of Directors…”…”The transaction may undervalue the Company and would result in no real gain or a loss for many long-term shareholders of Nortek, especially given that the Company’s 52-week high is $92.96…”
• Brodsky & Smith, LLC – “…investigation concerns whether the Board of Nortek breached their fiduciary duties to shareholders and whether Melrose is underpaying for the Company…”
• Rigrodsky & Long, PA – “…investigation concerns whether Nortek’s board of directors failed to adequately shop the Company and obtain the best possible value for Nortek shareholders…”
• Levi & Korsinsky, LLP – “…an investigation into the fairness of the sale of Nortek to a subsidiary of Melrose Industries PLC for $86.00 per share…”

As we said, that’s just a sampling. We’ll keep an eye and see if any of these go anywhere but it’s an impressive squad of lawyers lined up to take a shot at the Nortek Board of Directors.

A Peek at Melrose’s Plans for a Nortek Reorganization

In the meantime, we get a small peek at Melrose’s plans, including some of the steps it intends to take with their newly acquired Nortek in the Alliance News report. Melrose, the report says, “operates a business model by which [it] acquires underperforming industrial businesses, restructures and returns them to health, and then sells them on.”

In the case of Nortek, Melrose is said to have identified opportunities to improve the “operational quality” of Nortek’s businesses – “including boosting investment in its manufacturing facilities and product innovation, in addition to pursuing bolt-on acquisitions.”

Product Portfolio Needs ‘Focus’

The company also said it plans to “boost Nortek’s supply chain efficiency and put in place measures to drive market share gains.” Interestingly, Melrose said that Nortek’s current product portfolio “could benefit from an improved focus and opportunities have been identified to boost margins.”

Whew! With all of these opportunities Melrose has identified to improve Nortek’s businesses, one has to ask why current Nortek management failed to see them prior to now.

Need to Reduce Debt Costs

Melrose says it will also “reduce Nortek’s debt costs in order to free up cash flow.” And by cancelling Nortek’s NASDAQ listing, additional money can be saved with the relief from them many reporting requirements of public companies.

“Our ability to apply our industrial experience and investment expertise, as well as to liberate Nortek from its current capital structure will transform the prospects of the business,” said Simon Peckham, Melrose’s chief executive.

See more on Nortek at www.nortekinc.com.