2nd UPDATE: Canadian Venture Agrees To Buy Tomkins For GBP2.89 Billion

U.K.-based engineering and manufacturing company Tomkins PLC (TOMK.LN) Tuesday announced it agreed to be acquired by an investment vehicle established by Canadian private-equity firm Onex Corp. and the Canada Pension Plan Investment Board for about GBP2.89 billion.

In a statement, the Canadian organizations said the acquisition of Tomkins represents an attractive investment opportunity in the industrial, automotive and building products markets, in which Tomkins has strong positions and owns some of the most recognizable brands.

Pinafore Acquisitions Ltd., a consortium created for the purchase, said it will support Tomkins' current strategy of geographic expansion, organic growth in its core U.S. market, and strategic acquisitions, and that it believes that the next stage of Tomkins' development would be best achieved under private ownership, with long-term oriented shareholders such as Onex and CPPIB.

"We recognize that as economies around the world continue to struggle, significant challenges remain for all industrial companies," said Seth Mersky, chairman of Pinafore and managing director of Onex. "We believe that our offer represents a great reward for Tomkins' shareholders and a chance for us to build value over a long investment horizon."

The deal is the latest sign of a rise in mergers and acquisitions activity in the U.K., particularly by foreign firms looking to take advantage of the pound's weakness. Last week, personal care company Reckitt Benckiser Group PLC (RB.LN) agreed to buy Durex condoms and Scholl footcare products maker SSL International PLC (SSL.LN) for GBP2.54 billion, while earlier this month Emerson Electric Co. (EMR) of the U.S. fought off Switzerland's ABB Ltd. (ABB) to snap up secure power provider Chloride Group PLC (CHLD.LN) for about GBP1 billion.

Tomkins comprises two business units concentrated on the industrial and automotive industries and on building products. The industrial and automotive unit focuses on power transmission, fluid power, sensors and valves and other sectors, and in 2009 accounted for 76% of the company's sales. Its brands include Gates, a leading manufacturer of power transmission belts, electromechanical drive systems and hoses and tubing for the automotive industry. Customers include U.S. automakers General Motors Co. and Ford Motor Co. (F).

Its building products unit, which last year accounted for 24% of group sales, consists of its air distribution business that manufactures and sells commercial and residential air-handling components such as grilles and vents, and its Aquatic bath ware business, which makes bath tubs and shower enclosures, among other things.

The London-based company, which employs 25,500 workers, in 2009 posted pretax profit of $38.4 million on revenue of $4.18 billion. It reports earnings in dollars as its business increasingly is focused on the U.S.

Tomkins' operating performance in the first half of 2010 was strong, but it expects its end markets to deteriorate in the second half due to economic uncertainty and the weakening trend in some key indicators.

Pinafore will pay 325 pence for each Tomkins share, a premium of about 41% to the closing price of the company's shares July 16, the last business day prior to Tomkins' announcement that it had received an approach.

It will fund the deal with equity and debt financing. The debt financing, consisting of facilities of $3 billion, has been arranged and fully underwritten by Bank of America Merrill Lynch, Citigroup Global Markets Inc., Barclays Capital, RBC Capital Markets and UBS Securities LLC. The balance of $2.2 billion in equity financing will be met equally by Onex and CPPIB.

Onex manages investment platforms focused on private equity, real estate and credit securities. Its investments include Allison Transmission, of Indianapolis, Ind., which produces commercial-duty automatic transmissions. CPPIB is an investment management organization that invests funds not needed by the Canada Pension Plan to pay current benefits on behalf of 17 million Canadian contributors and beneficiaries.

Pinafore said it was keen to retain Tomkins management and Chief Executive James Nicol will relocate to North America to run the business.

"After careful consideration the independent directors of Tomkins believe that the cash offer from Onex and CPPIB provides Tomkins' shareholders with certain value today and fairly reflects both the value of the group today and its future potential," said David Newlands, chairman of Tomkins.

At 0828 GMT, Tomkins' shares traded up 17 pence, or 5.4%, at 324 pence. It was one of the biggest gainers in the FTSE 250 index, which traded up 0.5%.

-By Jonathan Buck, Dow Jones Newswires; +44 (0)207 842 9237; jonathan.buck@dowjones.com

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