Gardner Denver to consider buyout as earnings dim
(Reuters) - Gardner Denver Inc GDI.N prepared for a board meeting to consider a $3.7 billion buyout offer by KKR & Co LP (KKR.N) as its 2013 earnings forecast on Friday came well below analysts' expectations on weak demand for its pumps.
The Wayne, Pennsylvania-based company's board is set to meet on Monday to review KKR's offer while support is growing from top shareholders for KKR's offer of $75 per share, a person familiar with the matter said on Friday on condition of anonymity.
Gardner Denver did not respond to a request for comment while KKR declined to comment. Gardner Denver shares rose 5.2 percent to $70.98 late afternoon in New York.
Activist investor ValueAct Capital, which owns 5.1 percent of Gardner Denver, issued a statement on Friday endorsing the offer and noting it represented a premium of 44 percent over the company's share price on July 26, when it wrote to the company's board urging it to explore a sale.
"In our view, this offer should be considered a successful culmination of Gardner Denver's sale process and a wonderful result for all shareholders. We strongly encourage the board to accept this offer," ValueAct partner Greg Spivy said in the statement.
ValueAct is Gardner Denver's third-largest shareholder behind T. Rowe Price Associates Inc, which owns 9.7 percent, and BlackRock Institutional Trust Company, which owns 5.49 percent, according to Thomson Reuters data.
KKR is in a lead position to buy the company, sources told Reuters, after other private equity bidders abandoned the process following advanced due diligence that left them concerned with the company's order outlook.
This followed the collapse of advanced negotiations in December with peer SPX Corp (SPW.N) over a deal at $85 per share, people familiar with the matter told Reuters at the time. Gardner Denver snubbed first-round private equity offers in the mid-to-high $70s per share range when it entered into exclusive talks with SPX, according to the people.
Gardner Denver is left with one offer that is below some of those it received last year. People familiar with the matter told Reuters last week the company has considered leveraged recapitalization as an alternative.
The company made its exploration of strategic alternatives public in October following a Reuters report. Analyst Cliff Ransom, founder of Ransom Research, told Gardner Denver Chief Executive Michael Larsen on an earnings call on Friday he should not consider a major share repurchase as a strategic alternative.
"I have one comment and I don't expect you to respond and that is, that you are getting a lot of heat to do some kind of a massive buyback, and, just as one man's vote, please don't do that," Ransom said.
Gardner Denver forecast adjusted full-year 2013 earnings of $5.00 to $5.25 per share versus $5.74 per share in 2012. Wall Street was expecting earnings of $5.31 per share, according to Thomson Reuters I/B/E/S.
"What we are expecting now, based on current order trends, based on the backlog that we have today, is a decline in the 30 to 40 percent range for petroleum and industrial pumps here in 2013," Larsen said on the earnings conference call.
The petroleum and industrial pumps business accounted for $450 million in annual sales, Larsen said, or about 20 percent of overall revenue in 2012.
Gardner Denver said the drilling pumps business in particular would be weak for the first half of 2013 as orders it booked in January would only be shipped in the second half of the year.
Gardner Denver said it expects adjusted first-quarter earnings of 94 cents to $1.04 per share, below analysts' expectations of $1.16 per share.
"The fact that they haven't had these orders since the last half of 2012 is the reason why we have a lower-than-expected forecast," Maxim Group analyst William Bremer said.
However, Bremer expects the back half of the year to be better.
Net income attributable to the company fell 11 percent in the fourth quarter to $69.1 million, or $1.40 per share.
Excluding items, the company earned $1.49 per share, above analysts' expectations of $1.33 per share, helped by a restructuring it undertook in its European industrial products business.
The restructuring will generate $10 million to $15 million in savings in 2013, Larsen said on the call.
Revenue fell 4 percent to $589.7 million, but exceeded analysts' expectation of $558.1 million.
Orders at the engineered products business, which includes drilling pumps, fell 28 percent in the fourth quarter ended December 31. They have now fallen for three consecutive quarters.
"If it wasn't for the potential bid for the company, we believe the stock would have been materially down today," Bremer said.
(Reporting by Greg Roumeliotis in New York and Mridhula Raghavan in Bangalore; Editing by Supriya Kurane and Richard Chang)