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Nelson Peltz

Once IR spins off security division, will others follow?

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Wednesday, June 12, 2013

Once IR spins off its security division, will others follow? Poking around some investor conference info recently, I came across this tidbit on Seeking Alpha

“Stanley Black & Decker Chairman John Lundgren made an interesting revelation during his chat at the Electrical Products Group Conference yesterday. [The conference took place in late May]. The exec says the company will keep an eye on the spinoff from Ingersoll Rand of its security business to see if a similar move would make sense for SWK with its security business. On strategy: "Because if we are convinced a year or two years from now that we have got a 12x EBITDA business trapped in a 7 or 8x business, we will make it bigger."

Through my Stanley contacts, I asked Brett D. Bontrager, SVP and Group Executive, Stanley Security Solutions, for further comment on Lundgren’s statement. Bontrager declined comment saying that there was nothing more to say beyond what John Lundgren stated.

You may recall that Ingersoll Rand announced in December that it would spin off its security products business.  Here’s my story. The IR security business—which includes brands such as Schlage locks and other electronic and biometric access control products—will be a $2 billion company once it is spun off. The remaining IR business will be a $12 billion business.

Following the IR spinoff announcement, reports, such as this one from Bloomberg, speculated that the new standalone IR security company will present an acquisition target. This report said potential acquirers include Stanley Black & Decker (to add to its security businesses and further diversify from its power tools), Tyco (might be interested in IR’s commercial products but not its resi security products) and UTC. The report also notes that IR, which is headquartered in Swords, Ireland, presents certain tax advantages.

The IR spinoff was prompted by activist shareholder Nelson Peltz, whose Trian Fund Management owns about 7.3 percent of IR stock.

During ISC West, IR announced that Patrick Shannon will serve as senior VP and CFO of the new security spinoff and Barbara Santoro will serve as SVP and general counsel. They will report to the CEO, who has yet to be named.