UPDATE 3-Activist investor Peltz joins Ingersoll Rand board

Mon Aug 13, 2012 2:36pm EDT

* Peltz joins board's governance, finance committees

* Peltz's Trian has proposed breaking up company

* Shares fractionally lower

Aug 13 (Reuters) - Ingersoll Rand Plc named Nelson Peltz to its board on Monday, three months after the activist investor began pushing for changes at the manufacturer of air conditioners and security systems.

The move averts a potential proxy fight with Peltz, whose Trian Fund Management LP holds a 7 percent stake in Ingersoll.

Ingersoll said it is evaluating a number of strategic options, including those put forth by Peltz, and expects to complete its review by the end of the year. It said Peltz's addition to the board does not change the timetable for the process.

Trian has proposed restructuring Ingersoll's main business units or separating them into separate, publicly-traded companies, a move one analyst said makes strategic sense.

Analyst Brian Langenberg of Langenberg & Co, calling Peltz "a pretty sharp cookie," said air conditioning and security systems do not fit together naturally. "There's a case to be made for breaking up the company if you want to buy the pieces," he said.

ABB's recent takeover of Thomas & Betts, and Eaton's pending deal to buy Cooper Industries show there is an "urge to merge" in a slow economic environment, the analyst said. However, Ingersoll CEO Mike Lamach should also be given credit for trying to make the company more profitable, he added.

"Lamach's job should not be in jeopardy. He's been doing the right things," Langenberg said.

Lamach, who took over as CEO from Herb Henkel in 2010, has put more resources into emerging economies, which account for about a quarter of the company's sales, and is looking to expand the proportion of revenue it gets from parts and services.

Ingersoll has also restructured its businesses to make them more efficient and has cut the number of manufacturing facilities, setting up the company for potentially faster growth once housing and commercial construction markets recover.

AN EXPANDED BOARD

Trian has said Ingersoll should raise operating margins closer to the level of peers and consider using debt to fund a more aggressive stock buyback or a special dividend, according to a U.S. regulatory filing. Trian also said it was seeking more independent directors on Ingersoll's board and that executive pay needed to better reflect performance.

Peltz will join the Corporate Governance and Nominating Committee and the Finance Committee of the Ingersoll board.

In June Peltz declined an invitation to join Ingersoll's board, citing restrictions the company had imposed on him, such as precluding Trian from calling for an extraordinary general meeting of shareholders until the 2013 annual meeting. That restriction has been lifted, according to an Ingersoll spokeswoman.

A Trian representative declined comment.

Ingersoll shares were down 4 cents to $45.04 in afternoon trading. They have gained about 7 percent since Trian unveiled its stake in the company in early May.

Ingersoll makes industrial air compressors, security systems and golf carts, but its biggest business is heating and cooling systems as a result of its 2008 purchase of Trane. Its competitors in heating and cooling include Johnson Controls' York business, United Technologies Corp's Carrier unit and Lennox International Inc.

Analysts have said Ingersoll's air conditioning and security businesses fit together, so the likely focus for future divestitures would be the industrial business, which includes air compressors and specialty vehicles.

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