* To sell Nortek Air Management to Madison Industries
* Will use proceeds to reduce debt, pension deficit, pay shareholders (Adds shares, context, analyst comment)
April 19 (Reuters) - Melrose Industries has agreed to sell its Nortek Air Management business for about 2.62 billion pounds ($3.63 billion) and plans to use the proceeds to pay down debt, reduce a UK pension deficit and return cash to shareholders.
The British engineer, which purchased Nortek for 2.2 billion pounds in 2016, said on Monday it expects the sale of the business to Chicago-based buyout specialist Madison Industries to close in the second or third quarter of this year.
Melrose’s London-listed shares gained 1.7% in early trade.
Nortek, Melrose’s third largest division by revenue, manufactures heating, ventilation and air conditioning products for residential and commercial customers mostly in North America.
Melrose appointed strategic advisors in March last year to explore options for the temperature control business but the process was delayed because of lockdown restrictions.
Chairman Justin Dowley said in a statement that the Ergotron and Nortek Control businesses, which also form part of the Nortek Group, remain under its ownership and will be “realised at an appropriate time”.
Melrose, which bought jet and car parts supplier GKN for 8 billion pounds in 2018, said it plans to use part of the sale proceeds to contribute about 100 million pounds to the GKN UK pension scheme, reducing the funding deficit to around 200 million pounds.
Melrose specialises in acquiring and turning around under-performing businesses before selling them on. It had net debt of about 2.85 billion pounds at the end of last year.
The company did not say how much money it would return to shareholders.
“We see the announcement as a positive for the shareholders for a number of reasons – crystallising value, a now simplified, faster growing portfolio and further validation of the Melrose model,” J.P.Morgan analysts wrote in a note.
$1 = 0.7217 pounds Reporting by Yadarisa Shabong in Bengaluru, Editing by Sherry Jacob-Phillips, Kirsten Donovan