Pentair plc. Ordinary Share (NYSE: PNR)
hogged the limelight after a WSJ report said the
company is exploring a sale of its Valves & Controls business, with a potential speculated price of more than $2 billion.
The segment, which accounted for about 25 percent of PNR's sales ($1.6 billion) on a proforma basis, has come under pressure
after end market headwinds weighed on the results.
However, a Baird analyst says the speculated price is likely too low to justify a sale, which would nevertheless enable Pentair
to focus on core end markets. resulting in a higher margin company. It may be recalled that Pentair originally acquired V&C as
part of about $4.5 billion transaction with Tyco International plc (Ireland) Ordinary Share(NYSE: TYC) in 2012.
"Speculated sale price would represent -10x our near-trough 2017E EBITDA but would likely be too low to create value from PNR's
perspective. While a sale is possible (and a potential catalyst), we recognize that aligning buyer/seller expectations could prove
challenging, and we remain Neutral-rated," analyst Michael Halloran wrote in a note.
On the potential acquirers, apart from private equity firms, Halloran said potential strategic buyers include diversified
industrials such as ABB Ltd (ADR) (NYSE: ABB),
Colfax Corp (NYSE: CFX), Emerson
Electric Co. (NYSE: EMR), General Electric
Company (NYSE: GE) and Honeywell International
Inc. (NYSE: HON). Oilfield services players may also
be interested on the asset.
"[P]urer play flow companies (ELS, Sulzer, WEIR: less likely n our view, given size)," Halloran noted.
Despite the potential M&A catalyst, the analyst said investors should wait to approach near term until further information
materializes-- given the uncertainty of consummating a transaction.
"As such we remain on the sidelines as we look for greater confidence in underlying demand improvement ander confidence in the
forward earnings stream emerges," Halloran added.
At the time of writing, shares of Pentair fell 1.22 percent to $60.01. The analyst has a price target of $60.
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