Ingersoll-Rand Buys Trane in $10B Deal
Published in: AP Online
Date: 12/17/2007
By: LINDA A. JOHNSON
In a deal worth a cool $10 billion, Ingersoll-Rand Co. will acquire Trane Inc. and create one of the world’s largest makers of commercial and residential home air conditioners, refrigerators for trucks and stores, and other climate control products.
But some Ingersoll-Rand shareholders, who had expected the cash-rich company to pour some money into share repurchases, seemed disappointed with the acquisition announced Monday and sold Ingersoll-Rand stock, driving shares down sharply.
The $10.1 billion cash and stock deal _ one of the largest industrial buyouts in recent years _ gives Ingersoll-Rand, which makes Thermo King refrigerated trucks and Hussmann refrigerated display cases, access to Trane’s building and transportation cooling systems.
“What they bought in Trane is a premier position in climate control,” with $11 billion in annual revenues, said industrial manufacturing analyst Eli Lustgarten of Longbow Securities.
That will be nearly two-thirds of the combined company’s expected 2008 revenues of $17 billion, slightly more than double the current total revenue for each.
Lustgarten noted that will make the combined company No. 2 in air conditioning, after the $14 billion-a-year business of Carrier Corp., a unit of United Technologies Corp.
The acquisition comes at a time when use of air conditioning is increasing in emerging markets. Sales are growing 25 percent a year in India, where Carrier is building a $50 million research and development center, for example.
Bermuda-based Ingersoll-Rand, which has operational headquarters in Woodcliff Lake, N.J., manufactures everything from air compressors and Club Car golf carts to Schlage locks and door hardware.
Piscataway, N.J.-based Trane, formerly known as American Standard Companies Inc., focuses almost exclusively on residential and commercial climate control.
Lustgarten said the deal brings the combined company strong growth opportunities, especially for Trane sales outside the U.S., and it likely will put far more emphasis on growing recurring revenues, such as servicing contracts for its equipment. The combined company now will supply both air conditioning systems and refrigeration cases for retail giant Wal-Mart Stores Inc., so it could bid on servicing both, he noted.
Ingersoll-Rand Chief Executive Officer Herbert Henkel told analysts the deal is a big step in his company’s lengthy transformation to “a leading global diversified industrial company” from a manufacturer of heavy machinery. That machinery, such as construction equipment, had sales rise and fall sharply with the overall economy, and Henkel said his company over this decade has been selling a number of those cyclical businesses.
The strategy culminated with last month’s $4.9 billion sale of Ingersoll-Rand’s Bobcat utility equipment and attachments businesses. That left the company cash rich and its stockholders expecting either a big share buyback or the entire company going private, analysts said in explaining why shares fell so much Monday.
Trane shares jumped $8.04, or 21.6 percent, to $45.24, while Ingersoll-Rand shares dropped $5.58, or 11.4 percent, to $43.60. Each lost about 15 cents in after-hours trading.
Henkel told analysts the deal’s timing is “close to perfect” for both companies, noting each has made major divestments in recent months that sharpen their focus.
Trane recently sold off its kitchen and bath business, as well as its auto braking systems business. It’s keeping the well-known American Standard brand name for its heating, ventilating and air conditioning and related products.
Henkel said the combined company expects to earn $4 per share in 2008 and will have more than $300 million in annual pretax synergies by 2010, including savings on materials and overhead.
Under the terms of the agreement, Trane shareholders will receive $36.50 per share, or a total of about $7.5 billion, plus 0.23 Ingersoll-Rand shares for each Trane share. At Friday’s closing price, that equates to $47.81 per Trane share, nearly a 30 percent premium over Trane’s value Friday.
The deal is expected to close in spring 2008 and requires approval by regulators and Trane shareholders, as well as usual closing conditions.
The two companies currently have a combined 64,000 employees in 109 manufacturing plants worldwide.