From: Reuters
Published December 17, 2007 12:13 PM

Ingersoll-Rand to buy Trane in cash, stock deal

By Scott Malone

BOSTON (Reuters) - Diversified manufacturer Ingersoll-Rand Co Ltd <IR.N> said on Monday it would buy Trane Inc <TT.N>, a maker of heating and air conditioning systems, for about $9.4 billion in cash and stock.

The deal would give Ingersoll, which already sells products for transporting, storing and selling refrigerated foods, a large presence in the commercial and residential air conditioning segment, and also would increase its sales into fast-growing emerging markets.

Trane, whose largest competitor is the Carrier unit of United Technologies Corp <UTX.N>, would gain the backing of a large conglomerate.

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"This is a big opportunity," said Ingersoll Chief Executive Herbert Henkel, on a conference call with investors. "Both companies have been delivering strong double-digit growth outside North America, and we think this transaction can act as a catalyst to sustain high growth in overseas markets."

Trane shares climbed and Ingersoll's slid on the news.

"There may be fears that we are close to the peak of the cycle for nonresidential" construction, wrote Ann Duignan, analyst at Bear Stearns. She added that the decline in Ingersoll shares reflected "fears that the acquired business is at peak of its cycle -- a legitimate concern."

With the addition of Trane, Ingersoll would have 2008 revenue of about $17 billion, the company said. Analysts' average forecast for Ingersoll's 2008 revenue, without Trane, is $9.35 billion, according to Reuters Estimates.

Including Trane, Ingersoll expects it would earn $4 per share in 2008, and see organic growth of 5 percent to 7 percent and earnings-per-share growth of 15 percent in 2008, Henkel said.

VALUATION

Based on Monday's share prices, the deal values Trane at $46.73 per share, a 25.6 percent premium over its December 14 closing price of $37.20. Ingersoll would pay $36.50 in cash and 0.23 share of its stock for each Trane share.

Ingersoll said Trane had about 200 million shares outstanding; based on that share count and Monday's stock prices, the deal would be worth $9.35 billion in cash and stock.

Ingersoll also said it would assume $150 million of Trane debt, issue up to 54 million new shares and take on about $3.8 billion in new debt to finance the deal.

Trane shares rose $8.40, or 22.6 percent, to $45.60 on the New York Stock Exchange. Ingersoll shares slipped $4.70, or 9.6 percent, to $44.48, also on the NYSE.

Ingersoll shares are up about 16 percent and Trane's are up about 43 percent so far this year. By way of comparison, the broad Standard & Poor's 500 index <.SPX> is up about 3 percent.

Both companies have significantly restructured themselves. Trane, formerly known as American Standard, earlier this year sold its bath and kitchen business and spun off its vehicle control units to focus on air conditioning.

Ingersoll since 2000 has sold businesses that generated some $7.4 billion in collective revenue. Last month it sold its Bobcat machinery and two other equipment units to South Korea's Doosan Infracore <042670.KS> in a $4.9 billion cash deal.

COST SAVINGS

With the acquisition of Piscataway, New Jersey-based Trane, Ingersoll said it expects its climate control business would generate revenue of $11 billion in 2008.

The deal, which has been approved by both companies' boards, is expected to generate $300 million in pretax cost and revenue synergies by 2010, the companies said.

Ingersoll is incorporated in Hamilton, Bermuda, but maintains administrative headquarters in New Jersey.

"Strategically, the deal is sound," Deutsche Bank analyst Nigel Coe wrote in a note to clients. "(Ingersoll) is one of the world's largest manufacturers of refrigeration and air solutions, although it currently has limited presence in the air conditioning world."

The companies expect the deal to close late in the first quarter of 2008 or early in the second quarter following shareholder and regulatory approvals.

(Additional reporting by Emily Chasan and Ilaina Jonas in New York; Editing by John Wallace and Gerald E. McCormick)

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