* To buy back up to 175 mln stg of shares
* To divest majority of merchandising division
* Plans bolt-on acquisitions
* Shares rise as much as 8 pct (Adds CEO and analysts' comments, updates share movement)
By Karen Rebelo
March 7 (Reuters) - British engineer IMI Plc said it would buy back up to 175 million pounds ($263 million) of its shares and sell most of its merchandising business, sending its shares up as much as 8 percent.
IMI, which reported a 1 percent rise in full-year adjusted pretax profit, said it was also planning to spend significantly more on acquisitions in the years ahead.
"One of the most attractive end-market segments for us is the energy market - oil and gas upstream, refining and also things like LNG," Chief Executive Martin Lamb told Reuters.
The company also raised its final dividend to 20.7 pence per share from 19 a year earlier.
IMI, which specialises in fluid control systems such as valves and beverage dispensers, said it planned to sell most of its merchandising business, which makes marketing displays. The business contributed about 8 percent of revenue in 2012.
"We've got into a good stage now where I think it is going to be worth a good sum to another buyer," Lamb said, adding that the sale would help IMI focus on its core manufacturing business.
Adjusted pretax profit rose to 366.3 million pounds in 2012, up slightly from 363.4 million pounds a year earlier. Revenue increased 3 percent to 2.19 billion pounds.
Investec Securities analyst Michael Blogg said IMI's results were largely as expected, reflecting a challenging second half. Investors were focused on the share buyback and the announcement of the long-awaited sale of its display business, Blogg said.
IMI said it expected market conditions to remain subdued in the first half of 2013 but to improve gradually as the year progressed.
Numis Securities analyst Scott Cagehin said he expected margins to improve as IMI's fluid power business, which makes fluid-control components for trucks, was better placed to manage a tough business environment.
Shares of the FTSE 100 company were up 5.3 percent at 1329.36 pence at 0955 GMT on the London Stock Exchange on Thursday. They toucehd a life-high of 1370 pence earlier. ($1 = 0.6643 British pounds) (Reporting by Karen Rebelo in Bangalore; Editing by Joyjeet Das and Ted Kerr)