Peltz Unlikely To Bring Quick Improvements To Ingersoll-Rand - Analysts
May 10 2012 - 8:04AM
Dow Jones News
Activist investor Nelson Peltz will likely have difficulty
leveraging his big stake Ingersoll-Rand PLC (IR) into a quick and
comprehensive overhaul of Ingersoll's business portfolio, analysts
predicted Wednesday.
In a regulatory filing Wednesday that disclosed a 7.1% stake in
Ingersoll's stock, Peltz's Trian Fund Management LP said it plans
to engage in talks with Ingersoll executives to press its case for
enhancing "shareholder value by ... considering various strategic
alternatives, including a restructuring of [the company's] key
business segments."
Trian did not outline specific strategies, but Peltz has a
record of lobbying for asset sales and corporate breakups to pump
up flagging stock prices. Trian also noted that it will push for
the "addition of several new independent directors" for the
Ingersoll board and aligning "management compensation with the
[company's] performance."
Peltz is the latest activist investor to wade into industrial
stocks in search of big returns from companies some consider
laggards. Other recent activist forays include Carl Icahn's large
stakes in truck makers Oshkosh Corp. (OSK) and Navistar
International Corp. (NAV) and Relational Investors LLC's stake in
Illinois Tool Works Inc. (ITW).
But Icahn's attempt to install an alternative slate of Oshkosh
directors was soundly rejected by shareholders in January. ITW
granted a seat on its board to one Relational's co-founders in
exchange for the investment-management firm's pledge to refrain
from a proxy fight. Illinois Tool recently outlined a plan to focus
its business portfolio on higher-growth companies. But the strategy
is likely to take years to execute as ITW methodically evaluates
hundreds of businesses and sells units that don't fit into its
plans.
"The industrials seem to be attracting these activists, but none
of the situations that we've seen has really been effective,"
Stephen Volkmann, an analyst for Jefferies & Co., said
Wednesday.
Peltz's intervention comes at a time when Ingersoll's stock
price is soaring. The stock is up 46% since the beginning of the
year, compared to 7.7% for the Standard & Poor's Composite
Index. In New York Stock Exchange trading Wednesday, Ingersoll rose
5.4%, closing at $44.54 a share.
Volkmann said he is skeptical about Peltz's ability to be the
catalyst for significant improvement at Ingersoll. While
Ingersoll's performance has trailed its multi-industry peers in
recent years, analysts add there are no immediate remedies for the
company's anemic profit margins and sluggish sales growth. Many of
Ingersoll's businesses are in highly cyclical industries or
dependent on long-slumping sectors such as residential and
commercial construction.
Ingersoll's businesses lines include Trane heating and air
conditioning equipment, Club Car golf carts, Thermo King truck
trailer refrigerators, Schlage door locks, and pneumatic power
tools.
Analysts say the profits generated by individual parts of the
company aren't compelling enough to justify the creation of new,
public companies that could be spun off to Ingersoll shareholders.
It's a strategy used by ITT Corp. (ITT) to dismantle itself last
year and Tyco International Ltd. (TYC) is pursuing a similar
breakup later this year.
Ingersoll has sold businesses in recent years, most notably its
construction equipment business in 2008. It sold a majority stake
of its Hussmann refrigerated-case business last year to
private-equity firm Clayton Dubilier & Rice LLC for $370
million. Although Ingersoll used the proceeds from the sale to buy
back its stock, the company's inability to sell no more than a 60%
share of the business was perceived as an indication of Hussmann's
diminished value.
Some analysts have suggested the company consider selling Club
Car. But the tax ramifications of a sale could dampen the benefits
for Ingersoll, which is headquartered in Ireland.
Nevertheless, observers say pressure from Peltz could be
beneficial for the company, which has a reputation for inefficient
operations that are difficult to improve.
Chairman and Chief Executive Michael Lamach last year was forced
to abandon an ambitious set of goals that included earnings per
share of $5 to $5.75 in 2013 and an operating margins of 15% to
17%. For 2011, Ingersoll reported earnings per share of $1.01.
Meanwhile, its first-quarter operating margin was 6.7%, down from
7.6% a year earlier.
Peltz's intervention in the Ingersoll "shouldn't be too
surprising," said Deane Dray, an analyst for Citi Investment
Research. "The conditions are ripe. You've had a company that has
chronically underperformed."
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
Oshkosh (NYSE:OSK)
Historical Stock Chart
From Mar 2024 to Apr 2024
Oshkosh (NYSE:OSK)
Historical Stock Chart
From Apr 2023 to Apr 2024