Melrose in talks to buy Elster Group Melrose, the engineering turnround specialist, said it was in talks to acquire Elster Group in an all-cash deal that valued the German manufacturer of utility meters at more than $2bn. Melrose said the German target had opened its books for due diligence, but warned that it could pull out of any deal without a recommendation from Elster's board and approval from CVC Capital Partners, the private equity group whose Rembrandt Holdings vehicle controls almost two-thirds of Elster's shares. Elster on Monday confirmed the discussions with Melrose, and said that the cash offer of $20.50 per share - a 25 per cent premium to Friday's closing price - valued its equity at $2.3bn. FTSE 250-listed Melrose would fund any deal through a combination of new debt and a £1.2bn rights issue to its existing shareholders. "The board of Melrose will only proceed with the transaction if it meets Melrose's acquisition criteria, including the terms on which financing for the transaction can be raised," added Melrose. This will include, but not be limited to, the Melrose share price at the time of announcement. New York-listed Elster shares, which traded as low as $13.50 last week, closed at $16.40 on Friday. Melrose shares rose 0.9 per cent to 385.8p in early London trading on Monday. Melrose, which seeks to make money by buying underperforming companies before improving them and selling them on, has been eyeing up possible acquisitions after last year losing out to Colfax in its bid to buy Charter, the UK engineering company. Elster, whose products measure and control the supply of electricity, gas and water in 130 countries, generated revenues of $1.9bn in 2011, and has deployed more than 200m meters over the past decade. In the first quarter to March 31, Elster reported revenues up 0.6 per cent year-on-year to $446.7m, but a fall in gross profit from $146.5m to $131m on the back of higher costs from the closure of several of its underperforming operations in North America and Europe. Both Elster and Melrose are yet to offer a timeline for any possible deal, and rival bids from Siemens, the German electronics company, or ABB, the Swiss-Swedish engineering group, have been rumoured. However, Rembrandt Holdings has agreed to pay a termination fee to Melrose should it accept another offer for its 62 per cent stake.