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Pentair goes with Tyco Flow

by Laura Board | Published March 28, 2012 at 8:23 AM

Tyco International Ltd. has agreed to merge its flow-control business with Pentair Inc. in a $4.9 billion transaction that represents a variation on its six-month-old plan to split into three.

The merged company will make water and fluid solutions, valves and controls, and equipment protection products, with Tyco Flow delivering a "meaningfully increase" in Pentair's global presence, according to Pentair Chairman and CEO Randall J. Hogan.

"The new Pentair will be well positioned to benefit from the increased demands on energy, water, infrastructure and industrial process resulting from the growing population and wealth of developing economies," said Hogan, who will remain in place after the transaction, in a statement Wednesday, March 28.

The transaction confirms expectations that Tyco's September split would make the component parts of the industrial conglomerate more appealing to potential bidders.

But the companies' fusion may in turn reduce the competitive tension in United Technologies Corp.'s $2 billion auction of its pumps business. Goldman, Sachs & Co. is believed to be shopping the unit as part of UTC's $3 billion disposals program to help pay for its $16.5 billion purchase of Goodrich Corp. Both Tyco and Pentair were seen likely to bid separately for the pumps business.

The enlarged Pentair expects to have $7.7 billion pro forma revenue in 2012 and to generate $250 million of annual synergies from the transaction by 2015.

After a tax-free stock swap, Pentair would be 52.5% owned by Tyco shareholders and 47.5% by investors in Minneapolis-based Pentair.

The $4.9 billion valuation of Tyco Flow includes net debt.

Schaffhausen, Switzerland-based Tyco, which has its operational headquarters in Princeton, N.J., said in September it would divide residential security provider ADT North America; Tyco Flow; and its fire and security products business into three publicly traded companies.

"This transaction provides compelling value for Tyco shareholders through ownership in a combined company with earnings and cash flow prospects that are greater than an independent, publicly traded Tyco Flow," said Tyco Chairman and CEO Ed Breen in a statement.

Under the September plan, Breen will be nonexecutive chairman of the commercial fire and security company, a business which may attract takeover interest from Schneider Electric SA, Honeywell International Inc., Siemens AG or possibly UTC. Schneider Electric was last year rumored to be contemplating a bid for the whole of Tyco.

Lazard's Bill Lewis, Mark McMaster, Jean Greene and Navin Bhargava are advising the Tyco board. Goldman, Sachs & Co. is advising Tyco, and also provided Tyco's board with a fairness opinion. Simpson Thacher & Bartlett LLP and McDermott Will & Emery are providing Tyco's legal advice. The Lazard bankers, along with Goldman's George Mattson and Matt McClure and a Simpson Thacher team led by Alan Klein have been assisting Tyco on its wider three-way split.

Deutsche Bank Securities Inc. is acting as financial adviser to Pentair and Cravath, Swaine & Moore LLP and Foley & Lardner LLP are providing legal counsel.

Greenhill & Co. LLC provided a fairness opinion to Pentair's board.

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Tags: Pentair Inc. | Randall J. Hogan | Tyco International Ltd.

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