Pentair and Tyco plan $4.5 billion merger
Two of the sector's biggest names combine, and investors of both companies applaud the deal.
This all-stock deal brings together two of the industry's biggest names, and was valued at $4.53 billion. The moves comes as Tyco continues to break itself up into independent companies.
Tyco will spin off its flow unit to shareholders, and the business will immediately merge with the operations of Pentair, which is based in Minneapolis, according to Bloomberg. Tyco shareholders will own 52.5% of the combined company, with Pentair investors owning the rest. The new company will keep the Pentair name.
Pentair shares soared after the announcement, closing Wednesday up 15% to $46.32. Tyco investors were also pleased, sending the stock up more than 4% to $55.81.
Tyco announced last year that it is dividing into three companies. This latest flow-control merger will create a new business with $7.7 billion in combined sales. Integrating the companies could create as much as $250 million in annual savings.
"The new Pentair will be well positioned to benefit from the increased demands on energy, water, infrastructure and industrial process resulting from the growing population and wealth of developing economies," Pentair CEO Randall Hogan, who will be in charge of the new company, said in a statement.
The new company will also take on roughly $275 million of Tyco Flow debt. Pentair closed Wednesday at $40.26, and this transaction values TYC at $4.9 billion, including that debt and $94 million of minority interest.
On Wednesday, Morgan Stanley estimated that Pentair could achieve earnings of $5 a share by 2015, taking into account expected operating synergies of $200 million and the tax benefits of incorporating in Switzerland.
The merger will reinforce the view that Tyco management is focused on maximizing shareholder value after its spinoffs, which is a key positive, Morgan Stanley analysts wrote in a report. But the analysts added that they saw little in the announcement to force the stock higher fundamentally.
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