Pentair acquires Tyco unit in $5B deal

Golden Valley-based Pentair today announced a deal that will double the company's size and could lead to more jobs in Minnesota.

Pentair is acquiring the valve and flow control operations of Tyco International, cutting a deal of nearly $5 billion for operations that fit quite well with the company's main business of providing products and systems that control the filtration, treatment and storage of water and other fluids.

"It makes Pentair the number one player in the markets we compete in," said Pentair CEO Randy Hogan.

Hogan will lead the company formed by Pentair's acquisition of the Tyco business. It will retain the Pentair name and be headquartered in Minnesota, where Pentair has about 2,000 employees. Hogan said the company will likely add jobs in Minnesota as a result of the acquisition, but would not say how many.

Hogan also is the vice chair of the Minnesota Public Radio board of trustees.

The combined company will have about 30,000 employees and $8 billion in annual sales. Hogan said the firm will be well-positioned to help China, India and other fast-growing countries to further develop water, energy and other resources.

"It gives us greater reach into those fast-growth markets where there is a rising middle-class that's demanding more food, more energy, a higher quality of life," Hogan said. "We didn't have strong enough reach in those fast-growth markets. We more than triple our size in fast-growth markets."

Sixty percent of Pentair's business has been in the U.S. But most of the combined company's sales will be outside the U.S. and Canada.

Hogan said water is at the heart of Pentair's business, helping consumers, farmers, companies and cities make their water use safe and efficient.

"We move it," he said. "We store it. We clean it. And we clean it again."

Water use and quality is an increasingly important issue throughout much of the world.

Last week, the U.S. Office of the Director of National Intelligence reported that many regions across the globe will experience water problems including shortages and poor quality. The study said that will increase instability and regional tensions and distract countries from working on important U.S. objectives.

Pentair's deal for the Tyco business stems from Tyco's plan, announced last year, to break itself up into three independent companies. That included its "flow control" business that sells valves and controls for the energy, mining and water markets.

The Pentair deal for Tyco was a clever move, said Thrivent Asset Management analyst Kent Mortensen.

"It's very transformative for Pentair," Mortensen said. "It's definitely high on the Richter scale."

He said the deal not only ramps up Pentair's size but gives the company greater "breadth of product with regard to flow product — 'flow' being pumps and valves, filtration."

Wall Street certainly liked the deal. The merger news sent Pentair's shares up about 15 percent Wednesday. The company's stock closed at $46.32.

But Mark Henneman of the St. Paul-based Mairs and Power investment firm is reserving judgment on the deal.

"On the surface, it looks like a really good deal for Pentair," Henneman said. "But it's a very big deal. It's very complicated.

"We're going to take some time to really digest it and understand it and determine an overall valuation for what we think the company is now worth."

The transaction is subject to shareholder and regulatory approval and the completion of Tyco's breakup, which may be completed by September. The deal's $4.9 billion value is based mostly on stock and the assumption of some Tyco debt.

The combined companies will generate enough revenue to rank the new Pentair 14th on a list of Minnesota-headquartered Fortune 500 firms. But because the new Pentair will be incorporated in Switzerland, it might not be included on the Fortune 500. The office that manages the list did not provide a ruling on Pentair's new status.

This report includes material from the Bloomberg news service.

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