Activist investor Trian has urged U.K.-based Pentair to strike deals
August 17, 2015 – The Wall Street Journal – Pentair PLC has agreed to buy Erico Global Co. of the U.S. for $1.8 billion in cash, including the repayment of debt, after coming under pressure from activist investor Trian Fund Management LP to strike deals.
The U.K.-based industrial manufacturing company said the deal, its largest since merging with Tyco International PLC’s former pipe-and-valve unit in 2012, will expand its presence in the commercial and industrial sectors.
Pentair’s valve and controls business has been hurt recently by weakness in the energy sector. Chief Executive Randall Hogan said in an interview Monday that the addition of Erico’s engineered electrical and fastening products will reduce the company’s exposure to oil-price fluctuations.
Shares in Pentair were up 1.4% at $62.52 each on the New York Stock Exchange on Monday afternoon.
“We have similar cultures and serve similar industries with complementary products, which will create a broader and stronger offering for our end users,” Mr. Hogan said.
Earlier this year, Trian revealed a 7% stake in Pentair, which makes pumps and valves used in things as diverse as oil refineries and backyard pools, asking the company to consider buying up rivals in an effort to consolidate the fragmented market for the specialized parts.
Trian had been impressed by Mr. Hogan’s prior deal making and ability to integrate acquisitions into Pentair, and believed he could continue to grow the company through larger purchases, people familiar with the matter had said.
The New York investment fund declined to comment on Monday’s deal.
Mr. Hogan said Pentair has considered acquiring Erico for a decade, and talks became serious about six months ago amid a change in leadership at Erico. Mr. Hogan said the transaction “stretches our balance sheet,” but he added that Pentair will continue to look for deals.
Pentair has an advantage over some U.S. rivals because its operations in Ireland, where it is incorporated, and the U.K. give it a lower corporate tax rate. The desire to decrease taxes has spurred a spate of deals during the past year, as companies look for ways to boost profits in a slow-growth economy.
In recent years, Pentair has been focused on integrating the Tyco business. The company exceeded the cost savings it expected to pull out of the combination but has fallen short of the earnings goals it set.
Pentair said it expects the deal for Erico, slated to close by the end of the year, to add more than 40 cents to its adjusted per-share earnings next year.
Source: The Wall Street Journal, Chelsea Dulaney