ITW Divests Decorative Surfaces

Zacks

On October 31, Industrial, tool-maker, Illinois Tool Works Inc. (ITW), announced completion of the divestment of 51% stake in its Decorative Surfaces division to a fund managed by Clayton, Dubilier & Rice, LLC (CD&R). The transaction was earlier announced on August 16, 2012. The stock gained momentum and ended 1.75% higher than the previous day’s closing price.

The transaction involved Wilsonart and related international businesses which, following the divestment, will form a new company named Wilsonart International Holdings, LLC. As agreed upon, Illinois Tools will be getting roughly $1.05 billion in cash and a 49% stake in Wilsonart International Holdings.  Cash proceeds from sales will be utilized majorly for repurchasing common shares of the company.

The divestment will help Illinois Tool allocate free resources to its core businesses and also earn from its stake in the laminate business. Starting the fourth quarter 2012, the company’s equity interest (49%) in the decorative surfaces business will be reported using equity method of accounting.

Decorative Surfaces division produces decorative surfacing material for furniture, office and retail space, countertops, flooring and other applications. It mainly serves the commercial construction (55%), renovation construction (30%) and residential construction (14%) end markets. The division reported revenues of $1.1 billion in 2011.

The Zacks Consensus Estimate for the fourth quarter 2012 stand at 92 cents, up 2.0% year over year. Estimates for 2012 and 2013 are at $4.10 and $4.41, representing year-over-year growth of 0.5% and 7.5%, respectively.

Illinois Tool Works is one of the leading manufacturers of industrial products and equipment operating through 800 business units in 57 countries. We currently maintain a Neutral recommendation on the company. The stock also bears a Zacks #3 Rank, implying a short-term Hold rating. Its prime competitor Cooper Industries plc (CBE), General Electric Co. (GE), and Manitowoc Co. Inc. (MTW) also bear Zacks #3 (Hold) Rank.
 

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