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LONDON, UK / ACCESSWIRE / May 10, 2017 / Active Wall St. blog coverage looks at the headline from Pentair PLC (NYSE: PNR) as the Company announced on May 09, 2017 that it will separate its business into two independent and publicly traded Companies. One Company will focus on the water based business and the second Company will focus on the electrical business. Register with us now for your free membership and blog access at:
One of Pentair's competitors within the Industrial Equipment & Components space, CIRCOR International, Inc. (NYSE: CIR), reported on April 28, 2017, its financial results for Q1 ended April 02, 2017. AWS will be initiating a research report on CIRCOR Intl. in the coming days.
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Commenting on the decision to split, Randall J. Hogan, Chairman and CEO of Pentair said:
"Separating Water and Electrical to create two pure-play Companies is the next logical step in the evolution of Pentair and is consistent with our strategy to continually enhance shareholder value. Both Companies will have the focus, talent, and flexibility to grow profitably, both organically and through acquisitions."
The details of the split
As per the details shared by the Company, the split will create two distinct Companies. The Water focused Company will concentrate on smart, sustainable water, and fluid processing applications. It will also handle the design, manufacturing, and innovative solutions for the residential, commercial, and industrial customers. This Company will include the business verticals of Filtration & Process, Flow Technologies, and Aquatic & Environmental Systems. The Water based Company will continue to use the Pentair name and continue to be traded on its current ticker. Water based business recorded $2.8 billion in sales for FY16.
The Electrical based Company will focus on the business of improving utilization, lowering costs and maximizing customer uptime. It will continue to offer its industrial enclosures, fastening systems, and thermal management technologies that help protect sensitive equipment, buildings, and critical processes. The business verticals under the electrical business include Enclosures, Thermal Management and Electrical & Fastening Solutions. The name for the electrical business has not been finalized as yet and will be announced at a future date. Electrical based business generated sales of approximately $2.1 billion in FY16.
The separation of both businesses is expected to be tax free for its shareholders.
The transaction is expected to be completed in Q2 2018 and is subject to approval from the Board of Directors of Pentair, receipt of tax opinions, filings with the US SEC (Securities and Exchange Commission), and other closing conditions.
Once the businesses are officially split, the Electrical business will become an independent and publicly-traded Company. Pentair's shareholders will be issued shares of the Electrical Company on a pro-rata basis. Pentair will continue to maintain its incorporation and tax residency. The Electrical business is also expected to have the same type of incorporation and tax residency.
After the official separation of the businesses, John L. Stauch, who is currently the Senior Vice President and CFO of Pentair will take over as Water's CEO and Karl R. Frykman, who is currently the President of Pentair's Water vertical will take over as Water's COO. David A. Jones, who is currently a member of the Pentair's Board will take over as the Chairman of the Board of Directors of the Water business.
On the other hand, the Electrical business will be headed by Beth A. Wozniak, who is currently the President of Pentair's Electrical vertical, and he will take over as the CEO of the Electrical business. Randall J. Hogan will retire from his current position with Pentair and takeover as the Chairman of the Board of Directors of the Electrical business.
Both Water and Electrical businesses are expected to have adequate capital and have high investment grade credit ratings. Till the official split of the two businesses, Pentair will continue to pay quarterly dividends to its shareholders. It also plans to chalk out appropriate dividend policy guidelines for each business.
Rationale behind the split
The decision to separate its Water and Electrical businesses is a part of Pentair's business strategy to improve its profitability, capital allocation, and reduce debts. The splitting of the Company will unlock value for both the businesses and help them find their individual places in the respective industries and create distinctly well-known brands. The businesses will be able to maintain their profit margins, revenues, and make the most of the available growth opportunities. Pentair will now be able to focus on its core business – Water.
Another reason for the decision could be because of pressure from activist hedge fund Trian Fund Management LP, which invested in the Company in 2015 and has a seat in the Board of Directors. The activist investor has been pressurizing the Company to move away from its non-core businesses to improve its overall performance.
On Tuesday, May 09, 2017, Pentair's shares rose 2.48%, finishing the day at $67.73 with volume of 2.89 million shares exchanging hands by the close of the trading session. Pentair's stock price surged 17.14% in the last three months, 25.22% in the past six months, and 20.42% in the previous twelve months. Furthermore, since the start of the year, shares of the Company have rallied 22.16%. The stock is trading at a PE ratio of 28.22 and has a dividend yield of 2.04%. The stock has a market capital of $12.37 billion.
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