Ingersoll-Rand acquires Trane for $10 bn

BEIJING/TOKYO: Ingersoll-Rand, the maker of Thermo King truck refrigerators, agreed to buy Trane for $10.1 billion in cash and stock to gain air-conditioning and heating systems. Ingersoll will pay $36.50 in cash and 0.23 of a share for Trane, valuing the Piscataway, New Jersey-based manufacturer at $47.81 based on the December 14 closing price. The purchase price is 29% more than Trane's close that day.

The takeover will create a company with $17 billion of sales, more than 50% coming from the heating and cooling business, chief executive officer Herbert Henkel said on Monday in a statement. Ingersoll-Rand this month completed the sale of its Bobcat construction-machinery unit, shifting its focus to the growing market for equipment that prevents food from spoiling in transit.

“The market for transporting food is very strong,” said Sanjay Jha, a London-based analyst at Pali International. “That’s what Trane is good at. As food is increasingly being transported around the world, the demand for mobile air-cooling systems has been growing.” The purchase price is equal to 1.18 times revenue. That compares with a ratio of 1.41 when Hellman & Friedman purchased air-conditioning and ventilation maker Goodman Global for $2.61 billion in October, data compiled by Bloomberg shows.

Options to buy Trane, which last month changed its name from American Standard, surged on December 14 to almost 12 times the previous 20 days’ average on speculation it may be acquired, and the shares gained 4%. Ingersoll-Rand fell 2% to $49.18.

The combination will lift earnings to $4 a share in 2008, more than Ingersoll-Rand’s earlier forecast, according to the company, which earned $3.23 a share in 2006. The full-year profit target was already raised on October 27 after the decision to sell Bobcat.

Ingersoll-Rand will use the Trane purchase to focus on developing heating and cooling systems for vehicles as well as buildings. Continued growth in office and shop construction in the US has buoyed sales, helping to protect Trane against a slowdown in homebuilding. Commercial construction generates two-thirds of Trane’s revenue.

“This acquisition represents a significant next step in Ingersoll-Rand’s decade-long transformation to become a leading global diversified industrial company,” Henkel said in the statement. Ingersoll-Rand will take on $150 million of debt as part of the agreement.

Ingersoll-Rand is jostling for market share with Japan’s Daikin Industries, currently the world’s second-largest maker of air conditioners, and United Technologies’s Carrier division, the No 1, with $13.5 billion in sales. Daikin plans to boost production capacity at a plant in the Czech Republic by about 67% to 1 million units, to meet demand in the region. Merging and integrating Trane’s operations will result in cost savings of more than $300 million by 2010, Ingersoll-Rand said in the statement.

“With fuel costs at high levels, there will be more interest and investment in finding ways to reduce costs,” said Yang Hee Joon, an analyst at Mirae Asset Securities in Seoul. Yang covers machinery companies such as Doosan Infracore.

Trane, which provided heating and cooling equipment to the Statue of Liberty and the Kremlin in Moscow, employs more than 29,000 people, mainly specialising in heating, ventilation and air-conditioning