Manitowoc Yields To Activist Pressure And Will Spin Off Foodservice Business

Less than seven years after turning itself into a more diversified conglomerate with the purchase of Enodis, Manitowoc (MTW) reversed course and announced that it would separate its foodservice business from its crane equipment unit. The move comes after severe pressure from several activist investors, beginning with Relational Investors last summer and more recently from Carl Icahn who seemed to have picked up Relational’s baton after Relational CEO Ralph Whitworth fell ill. The two activists owned roughly ~15% of the company’s shares between them, but seemed to face an uphill battle due to apparent opposition from CEO Glen Tellock, a poison pill and a staggered board structure. In the end, Mr. Tellock caved after determining ‘that the Cranes and Foodservice businesses are best-suited to realize their full potential on a standalone basis’…despite just last year touting the benefits of having a more diversified company and revenue streams. The activists also notched another victory as the the company eliminated its staggered board structure.

Check out our earlier pieces on the subject for some additional details, but in short, the spin will create two companies:

The Cranes business, which reported annual revenue of $2.3 billion in the twelve-month period ended December 31, 2014, is one of the world’s largest providers of lifting equipment for the global construction industry, including lattice-boom cranes, tower cranes, mobile telescopic cranes, and boom trucks. The business holds leading market positions and highly recognized brands, including Manitowoc, Grove, National Crane, Potain, Shuttlelift and Crane Care brand names. The business operates 37 facilities in 18 countries and generates nearly 60% of its revenue from non-U.S. markets. Through its extensive global footprint, strategic focus on product innovation, and strong after-market support, the Cranes business is well-positioned to take advantage of expected improving demand in the residential and non-residential construction markets to generate long-term growth in revenue and net income.

The Foodservice business, which reported annual revenue of $1.6 billion in the twelve-month period endedDecember 31, 2014, is one of the world’s leading innovators and manufacturers of commercial foodservice equipment serving the ice, beverage, refrigeration, food prep, and cooking needs of restaurants, convenience stores, hotels, hospitals, and other institutions. The business has a worldwide network of 120 distributors serving dozens of well-recognized restaurant chains. The business promotes more than 24 industry-leading brands, includingManitowoc, Garland, Convotherm, Cleveland, Lincoln, Merrychef, Frymaster, Delfield, Kolpak, Kysor Panel, Servend, Multiplex, KitchenCare, Inducs, Koolaire and Manitowoc Beverage System, and has a global presence that spans five continents and more than 80 countries. Through its broad range of innovative products, expansion of its global network, and launch of sustainability initiatives, the Foodservice business is expected to enhance profitability and generate strong cash flow.

The crane business is notoriously cyclical and many question how it will fare on its own. Of course the spinoff will offer investors the choice of what type of company they prefer to be invested in.

MTW shares actually sank on the news, more likely due to the poor quarter and outlook for the business. Or maybe the spinoff news was just priced in after the pop from Mr. Icahn’s ownership announcement just a month ago. Either way, not the most encouraging sign. The spinoff is expected to be completed during the first quarter of 2016 so there will be plenty of time to research this in more depth. We will keep you updated as more information is released.

Disclosure: Author holds no position in any stock mentioned.