RBS Gets Heated Over £230m Radiator Deal

By Mark Kleinman, City Editor

The taxpayer-backed Royal Bank of Scotland (RBS) is risking a renewed political outcry by opposing the restructuring of a major British-based manufacturer that would preserve hundreds of UK jobs.

Sky News has learnt that RBS intends to vote against a proposed takeover of Ideal Stelrad, which makes boilers and radiators, by Bregal Capital, a private equity firm, in a move which will potentially prevent a transition to new ownership.

Bregal has tabled an offer valuing Ideal Stelrad's equity and debt at roughly £230m, a sum sufficient to enable the company's senior lenders to recover their original exposure to it.

RBS, which holds approximately 15% of Ideal Stelrad's shares, is understood to be holding out for a better offer despite the fact that the group's lenders have run an auction lasting well over six months.

Bank of Ireland, another major financial institution that was bailed out by taxpayers during the banking crisis of 2008, is also said to be opposing the deal, although it speaks for only around 5% of the company's shares.

The takeover bid from Bregal is understood to require the approval of at least 75% of Ideal Stelrad's shareholders, but with time running out ahead of an initial deadline on Friday evening, support for the deal is understood to have stalled at around the 70% mark.

Although it is possible for Ideal Stelrad's board to extend the deadline, many of the manufacturer's lenders are understood to be frustrated at RBS's stance and are concerned that Bregal could withdraw its interest.

A spokeswoman for RBS declined to comment, although a source close to the bank said that several options for the future of Ideal Stelrad remained under consideration. RBS did not have the power on its own to block a deal and the bank was intent upon remaining as an investor even after a transaction, they said.

RBS has frequently encountered a political backlash over its lending activities since it was rescued by taxpayers in 2008, with complaints ranging from its choice of customers to its perceived willingness to lend to British companies seeking funds to expand.

Headquartered in Newcastle, Ideal Stelrad has manufacturing facilities in Hull and Mexborough, south Yorkshire. It employs roughly 1,800 people in the UK and at its international operations in countries including Holland, Romania and Turkey, and Bregal is understood to have indicated that it would maintain the manufacturing capacity in the UK.

Ideal Stelrad is one of hundreds of companies in which RBS ended up holding a significant equity stake after the banking crisis and subsequent recession, with these shareholdings apportioned to dedicated teams within the taxpayer-backed bank.

Insiders said that relations between Ideal Stelrad's chairman, Richard Connell, and RBS had been strained for some time.

The bank is said to have been keen for the radiator and boiler divisions of the company to be sold separately in an effort to maximise value. Insiders said on Friday, however, that profits had been in decline at the radiator unit while trade buyers had not made compelling bids for the boiler business.

Bregal is a private equity firm whose investors include the billionaire Brenninkmeijer family, founders of the high street retailer C&A. Its investments in the UK include the fast-growing education company Cognita, and Zephyr, a wind-power generator.

The prospective buyer is understood to have structured its offer to allow existing shareholders to remain owners of up to 24.9% of the company if they wish to remain exposed to it.

If Bregal does succeed in acquiring Ideal Stelrad, it would become the third private equity firm to own the manufacturer in less than a decade.

Previously called Caradon Plumbing, the company was acquired by Montagu, formerly HSBC's buyout division, for £496m in 2000. The new owners decided to break up the business, selling Twyford Bathrooms for £85m and Mira Showers for £301m, and selling the rump of the group to Warburg Pincus for £227m in 2005.

That investment went awry after Warburg Pincus refinanced Ideal Stelrad at the height of the debt boom in 2007. The company then breached its borrowing agreements and underwent a financial restructuring that culminated in a debt-for-equity swap.

The current auction is being run by BNP Paribas, another of Ideal Stelrad's shareholders. Among the other investors are understood to be HSBC, GSO, a division of the giant US investment firm Blackstone, and National Australia Bank.

BNP and Bregal, which is being advised on its bid by DC Advisory Partners, were both unavailable for comment.

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