In Partial Victory For Peltz, Ingersoll Rand to Spin Off Security Business

Nelson Peltz is a name that comes up not infrequently in the world of spinoffs. We reported in August, that, after protracted discussions, he had gained a board seat at Ingersoll Rand (IR) and was pushing for the company to split into three publicly traded firms.

Today, Ingersoll Rand announced that it will be combining its residential and commercial security businesses and spinning them off as an independent company. The company expects the transaction to be tax free to shareholders and to be completed in 12 months.  Not the three companies Peltz had pushed for, but certainly a result of his actions. In addition, the company will be increasing debt, buying back $2 Billion in shares, and raising its dividend 31%.

After the spinoff, Ingersoll Rand will continue to be a conglomerate with a wide range of operating units:

Ingersoll Rand will continue to build on its industrial, transport refrigeration and HVAC businesses. The company will serve customers globally through a number of leading brands, including Ingersoll Rand, Trane, American Standard, Ameristar, Thermo King, Aro and Club Car.

Following the separation, the company will have annualized revenue of approximately $12 billion on a pro forma basis based on 2011 revenues. The company is expected to maintain a strong balance sheet and financial policies consistent with an investment grade credit rating.

Ingersoll Rand benefits from strong brand recognition, leading market shares, and differentiated positioning in geographic and end markets. The company will continue to enjoy benefits from synergistic opportunities in sourcing, engineering and technology across its Industrial Technologies, Climate Solutions and Residential HVAC businesses. Moreover, the company expects to benefit from increased organizational focus and continued progress on operational excellence initiatives to drive significant margin improvement. These foundational strengths, combined with growing energy demand and energy-efficiency regulations that are driving industry transformation, will further position the company to generate profitable, sustainable growth.

The new security company, though smaller, will be a substantial company with $2 Billion in annual revenues:

Under the plan, Ingersoll Rand’s existing commercial security business (currently known as the Security Technologies sector) will be combined with its residential security business (currently part of the Residential Solutions sector) to form a leading global safety product and services provider. This new company’s portfolio of brands will include Schlage, LCN, Von Duprin, Interflex, CISA, Briton, Bricard, BOCOM Systems, Dexter, Kryptonite, Falcon and Fusion Hardware Group.

The new company will have annualized revenue of approximately $2 billion on a pro forma basis based on 2011 revenues. The new security company is expected to generate strong free-cash flow and have the financial flexibility to take advantage of future growth opportunities.

The new security company is also expected to have strong margins, as well as strong brand recognition and market-leading products and solutions, to set a solid foundation for future growth. The company will benefit from synergies in sourcing, technology, and assembly operations across the residential and commercial security markets. It also will have the opportunity to invest in key markets to take advantage of growing trends around increased security concerns, electronics connectivity, product life-cycle costs and rapid demand growth in emerging markets.

The security sector has been popular in spinoffs as of late, with Tyco’s (TYC) recent spin of ADT (ADT) and Fortune Brands Home & Security’s (FBHS) recent separation from Jim Beam (BEAM).  With all the activity in the space, this new security business may have an exciting future.

Disclosure: The author has no position in any stock mentioned