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 $9.4 billion in cash and stock.
The deal would give Ingersoll a larger position in the cooling business and put the strength of a major conglomerate behind Trane, which faces rivals including United Technologies Corp's (UTX.N) Carrier unit. Trane, formerly known as American Standard, earlier this year sold off its bath and kitchen business and spun off its vehicle control units to focus on air conditioning.
With the addition of Trane, Ingersoll will have 2008 revenue of about $17 billion, the company said. Analysts' average forecast for Ingersoll's 2008 revenue, without Trane, is $9.35 billion.
Based on Monday's share prices, the deal values Trane at $47.10 per share, a 26.6 percent premium over its December 14 closing price of $37.20. Ingersoll will 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. It also said it would assume $150 million of Trane debt.
Trane shares rose $8.74, or 23.5 percent, to $45.94 in morning trade on the New York Stock Exchange. Ingersoll shares slipped $3.10, or 6.3 percent, to $46.08, also on the NYSE.
The combined companies expect to earn $4 per share in 2008, Ingersoll Chief Executive Herbert Henkel said in a statement.
With the acquisition of Piscataway, New Jersey-based Trane, Ingersoll said it expects its climate control business to generate revenue of $11 billion in 2008.
"Based upon market fundamentals such as rising energy costs and conservation initiatives, we expect solid replacement demand for energy-efficient products and for retrofit and refurbishment of current systems," Henkel said.
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.
"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."
Ingersoll is incorporated in Hamilton, Bermuda, but maintains administrative headquarters in New Jersey.
The companies expect the deal to close late in the first quarter of 2008 or early in the second quarter following shareholder and regulatory approval.