Pentair Explores Sale of Valves-and-Controls Business, Sources Say -- Update
June 02 2016 - 02:53PM
Dow Jones News
By Dana Mattioli and David Benoit
Pentair PLC is exploring a sale of its slumping
valves-and-controls business, a move that would largely unwind a
merger deal it struck just four years ago.
Pentair is working with investment bank Citigroup Inc. on a
potential sale of the business, which could fetch more than $2
billion, people familiar with the matter said.
It is unclear how advanced the sales process is and who might be
interested. And as always, it is possible there will be no
deal.
Pentair, which is based in Manchester, U.K., acquired the
valves-and-controls business as part of a $4.5 billion deal with
Tyco International Ltd. in 2012. The deal enabled Pentair to move
its headquarters abroad, where taxes are lower. While the deal
added other businesses, what Pentair is now considering selling
represented a large part of it.
But the valve business' results are weakening, with its sales
down 10% year-over-year in the first quarter and its income falling
54%, in part because of declining energy demand. Executives have
predicted an 8% drop in full-year revenue for the unit.
The business, one of four subdivisions of Pentair, makes valves,
fittings and controls for machinery used by oil-and-gas, power and
pharmaceutical companies. It has been hit by a slowdown in spending
by energy-industry customers as a result of the sharp drop in oil
prices.
On the company's earnings conference call in April, Pentair
Chief Executive Randall Hogan said the three other units were
positioned well, but the valves-and-control business won't grow
until at least 2017. The company just hired Dennis Cassidy to be
the new leader of the unit.
When asked if he considered himself a potential buyer of rivals
in that business, Mr. Hogan said that while Pentair once expected
to do that, he was instead focused on slashing costs and improving
margins.
"Right now, we're not focused on being a consolidator," Mr.
Hogan said, according to a transcript. "We're focused on fixing
what we got."
Last year, activist investor Trian Fund Management LP took
what's now a 7.9% stake in Pentair, which also makes water- and
fluid-filtration products as well as products for protecting
electrical equipment, and had a market value of nearly $11 billion
Thursday afternoon. Rather than pushing the company to break up or
sell itself, as such investors frequently do, Trian said Pentair
should consider acquiring rivals and consolidating the fragmented
market. Trian's Chief Investment Officer Ed Garden joined the
Pentair board.
A sale of the valves-and-controls business would mark the latest
effort to unload an acquired business that has disappointed.
Earlier this year, ConAgra Foods Inc. sold its struggling
private-label business, Ralcorp Holdings Inc., to TreeHouse Foods
Inc. for about $2.7 billion. ConAgra bought Ralcorp for about $5
billion in 2013, but the deal was a drag on operations.
Also this year, Xerox Corp. decided to unravel its largest
acquisition ever by splitting into two publicly traded companies,
one focused on machinery and the other on services.
Write to Dana Mattioli at dana.mattioli@wsj.com and David Benoit
at david.benoit@wsj.com
(END) Dow Jones Newswires
June 02, 2016 14:38 ET (18:38 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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