Pentair plc (London; www.pentair.com) announced that its Board of Directors has unanimously approved a plan to separate into two independent, publicly-traded companies focused on the water and electrical sectors, respectively. Both companies will benefit from market-leading positions in their respective industries, well-recognized brands, attractive margin profiles, strong free cash flow generation and compelling growth opportunities. The proposed transaction will create:
The water company (“Water”) will be focused on smart, sustainable water and fluid processing applications. It designs, manufactures and delivers innovative solutions to residential, commercial and industrial customers who place a premium on high quality water and fluids. Strategic business groups include Filtration & Process, Flow Technologies and Aquatic & Environmental Systems. The company will retain the Pentair name and ticker symbol. Water generated approximately $2.8 billion in sales in 2016.
The electrical company (“Electrical”) will be focused on improving utilization, lowering costs and maximizing customer uptime. Its industrial enclosures, fastening systems and thermal management technologies help protect sensitive equipment, buildings and critical processes and help keep people safe. Strategic business groups include Enclosures, Thermal Management and Electrical & Fastening Solutions. The company will be named at a later date. Electrical generated approximately $2.1 billion in sales in 2016.
The separation is expected to occur through a tax-free spin-off of Electrical by Pentair to its shareholders. Both Water and Electrical are expected to be well-capitalized and have investment-grade credit ratings. Until the planned separation is completed, Pentair expects to continue to pay its quarterly dividend and will set appropriate dividend policies for each business following completion.
“We have built two strong, high-performing businesses with the operating acumen and culture to thrive as two independent companies,” said Randall J. Hogan, Pentair Chairman and Chief Executive Officer. “Separating Water and Electrical to create two pure-play companies is the next logical step in the evolution of Pentair and is consistent with our strategy to continually enhance shareholder value. Both companies will have the focus, talent and flexibility to grow profitably, both organically and through acquisitions.”
Upon separation, John L. Stauch, Senior Vice President and Chief Financial Officer of Pentair, will become Water’s CEO and Karl R. Frykman, the current President of Pentair’s Water segment, will become Water’s COO. Existing Board member David A. Jones will become Chairman of Water. Beth A. Wozniak, the current President of Pentair’s Electrical segment, will become CEO of Electrical. Randall J. Hogan will retire as Pentair’s Chairman and CEO and will serve as Chairman of Electrical.
“We are grateful for Randy’s leadership and are excited that we will continue to benefit from his expertise as he assumes the role of Chairman of Electrical,” said William T. Monahan, Lead Director of Pentair. “During his 17 years as CEO, the Company has dramatically transformed and delivered more than a six-fold increase in market capitalization.”
Pentair expects to complete the separation in the second quarter of 2018, subject to satisfaction of customary conditions, including obtaining final approval from the Pentair Board of Directors, receipt of tax opinions and rulings and effectiveness of appropriate filings with the U.S. Securities and Exchange Commission.
Upon completion of the spin-off, Electrical will become an independent publicly-traded company and Pentair shareholders will receive shares of Electrical on a pro rata basis. Details of the distribution will be included in the Form 10 registration statement. Water is expected to maintain Pentair’s existing incorporation and tax residency and Electrical is anticipated to have a similar incorporation and tax residency.