November 15, 2012 / 10:21 PM / in 5 years

Gardner Denver shortlists buyers after initial bids -sources

* KKR, TPG-Onex consortium advance to second-round bidding

* Blackstone, Bain out of auction now -sources

* Gardner Denver received initial offers last week -sources

* Buyers do not see much premium over current prices

By Soyoung Kim and Greg Roumeliotis

NEW YORK, Nov 15 (Reuters) - Private equity firm KKR Co & LP and a partnership of buyout firms TPG Capital and Onex Corp advanced to the next round of bidding for Gardner Denver Inc, several people familiar with the matter said this week.

The industrial machinery maker shortlisted a small group of bidders on Tuesday, including the two private equity groups, after reviewing initial takeover offers submitted last week, the people said.

Blackstone Group LP and Bain Capital, which were participating in the auction process, did not advance to the second round of bidding, they said.

Gardner Denver, which has a market value of around $3.4 billion and makes compressors, pumps and vacuum products for industrial uses, said last month that it is exploring a potential sale.

Gardner Denver hopes to negotiate with a small group of bidders and let the parties conduct intensive due diligence through year-end, and potentially announce a transaction in January, two of the people said.

Industry rival SPX Corp, which has a market value of roughly $3.3 billion - just below that of Gardner Denver - and private equity firm Advent International also evaluated bids, the people said. It could not be immediately learned on Thursday if SPX or Advent were among the shortlisted bidders.

Gardner Denver declined to comment on the sale process. Representatives for Onex and Advent did not immediately respond to requests for comment. TPG, Blackstone, Bain and SPX declined to comment.

People familiar with the matter expect private equity eventually to prevail in the auction for Gardner Denver, as valuation has become expensive for publicly traded industry competitors that have seen their own stock prices languish over the past year.

In July, United Technologies Corp sold its Hamilton Sundstrand industrial businesses to Carlyle Group LP and BC Partners for $3.46 billion, following an auction that attracted interest from several industry players including SPX and Dover Corp.

Shares of Gardner Denver have risen 27 percent since the company said on Oct. 25 it was exploring a potential sale, confirming what sources had earlier told Reuters. The stock ended up 0.9 percent at $69.58 on the New York Exchange on Thursday.

Gardner Denver has grappled with lower demand for petroleum and industrial pumps, which pressured its engineered products group. That group reported a 20 percent drop in revenue in the third quarter.

Credit Suisse analyst Julian Mitchell said in a research report last month that a take-out of the company could occur in the $70s per share, and said the stock is inexpensive at current levels even if a sale does not occur.

But some buyers expect Gardner Denver’s earnings to decline further next year, making it tough for them to bid much higher on the company’s current share prices, which have already rallied on the prospects of a takeover, sources said.

The auction of Gardner Denver follows months of pressure from activist investor ValueAct Capital LLC, which has been calling for a sale of the company after acquiring a stake of roughly 5 percent.

The shareholder campaign followed the sudden resignation of Chief Executive Barry Pennypacker earlier this summer and his interim replacement by Chief Financial Officer Michael Larsen.

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