Industrial tool maker, Illinois Tool Works Inc. (ITW) has decided to sell its Industrial Packaging segment to the Carlyle Group for $3.2 billion. A definitive agreement has been signed between the two parties, with the transaction expected to be completed by mid 2014.
Investors reacted positively to the news with the share price edging up 0.7% over the previous day at the end of the trading session on Feb 6, 2014.
Earlier, in Sep 2013, the board of directors had approved of the sale of the company’s Industrial Packaging business. The decision was consistent with the company’s key enterprise initiatives.
Illinois Tool Works expects earnings impact from the divestiture to be neutral, as it plans to negate the earnings dilution from the sale with accretive share buybacks. As many as 50 million shares are intended to be repurchased under the existing authorization by the end of 2014 (roughly 14 million have already been repurchased in 2013) using primarily free cash flow, part of sales proceeds and additional funds.
This move is the second of its kind in a row after Illinois Tool Works divested its Decorative Surfaces division in Oct 2012. The business sale fetched the company roughly $1.05 billion along with a 49% stake in Wilsonart International Holdings, LLC, a new company formed after the divestment.
Strategic sale of the not-so-profitable businesses is a part of the company’s portfolio management strategy. It works well for the future growth of the company by freeing resources that can be invested for the development of its core businesses. Since 2011, Illinois Tool Works has divested roughly 20 non-core businesses. By 2014, the company aims at divesting roughly 25% of 2011 revenue.
Illinois Tool Works currently has a $34.2 billion market capitalization and carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Middleby Corp. (MIDD), Altra Industrial Motion Corp. (AIMC) and Barnes Group Inc. (B). All these companies hold a Zacks Rank #2 (Buy).
Read the Full Research Report on B
Read the Full Research Report on AIMC
Read the Full Research Report on ^MIDD
Zacks Investment Research
- Illinois Tool Works Inc.
- Carlyle Group