Why did JANA Partners open a new position in Allegion?

Market Realist

Must-know assessment: JANA Partners' positions in 4Q 2013 (Part 2 of 8)

(Continued from Part 1)

JANA Partners disclosed a 2.41% new position in Allegion plc (ALLE), a $2 billion security solutions provider for homes and businesses. Allegion has seen hedge fund interest with Trian Partners and DE Shaw holding positions in the stock.

Allegion debuted in December last year as a standalone, publicly-traded company following its spinoff from industrial goods manufacturer Ingersoll-Rand (IR). Under the spinoff transaction, approximately 96 million ordinary shares of Allegion were issued to Ingersoll-Rand shareholders. These holders received one ordinary share of Allegion for every three ordinary shares of IR held. Fractional shares that the IR shareholders would otherwise have been entitled to receive were aggregated and sold in the public market.

Ireland-based Ingersoll-Rand had confirmed the spin off in December 2012, after a strategic review to improve shareholder and company value. Activist firm Trian Partners, which acquired a 7% stake in Ingersoll-Rand in 2012 and a seat on the company’s board, was instrumental in pushing for a break up of the company that eventually culminated in the spin off of the security business. The division, according to news reports, accounts for 15% of Ingersoll-Rand’s revenue. After the spin off, Ingersoll reported its financial results as two segments—climate and industrial. For the fourth quarter, Ingersoll-Rand reported a profit of $47.6 million, or $0.16 a share, a decline from $235.6 million, or $0.78 a share due to a slowdown in the U.S. construction spending. The company said on its earnings call that industrial markets will remain slow, and that industrial production statistics have not improved in recent reports.

Allegion recently declared a quarterly dividend of $0.08 per ordinary share and authorized the repurchase of up to $200 million of shares. The company recently reported fourth quarter 2013 net revenues of $550.6 million, up by 0.8% compared to the prior year, and EPS from continuing operations of $0.10 per share. For the full year 2014, the company expects adjusted EPS from continuing operations of $2.25 to $2.40 per share and reported EPS from continuing operations of $1.95 to $2.15.

Allegion said it achieved solid operating performance in 2013, despite significant organizational change during the year, and is well-positioned for growth in 2014. The U.S. institutional construction is expected to continue its recovery, and continued improvement in residential market construction and strong performance in the multi-family sector are anticipated. Since the completion of the spin-off, Allegion has begun to implement its growth initiatives by pursuing strategic expansion opportunities, including its recent acquisition of Schlage Lock de Colombia and fostering organic growth of its market-leading brands.

About Allegion

Allegion specializes in security around the doorway and beyond including: residential and commercial locks, door closers and exit devices, steel doors and frames, and access control and workforce productivity systems. Allegion comprises 23 global brands, including strategic brands CISA, Interflex, LCN, Schlage, and Von Duprin. Ingersoll-Rand’s industrial brands include Club Car, Schlage, Thermo King, and Trane.

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