Dec. 17 (Bloomberg) -- Ingersoll-Rand Co., the world's largest maker of truck-refrigeration units, agreed to buy Trane Inc. for about $9.95 billion in cash and stock to add air- conditioning systems, more than tripling climate-control sales.

Ingersoll-Rand will pay $36.50 in cash and 0.23 of a share for Trane, valuing the Piscataway, New Jersey-based company at $47.81 a share based on the Dec. 14 closing price, a 29 percent premium. Including $150 million in assumed debt, the deal is valued at $10.1 billion, the company said today in a statement.

The takeover of the biggest U.S. commercial air-conditioner maker will create a company with $17 billion in sales, about $11 billion from heating and cooling, Chief Executive Officer Herbert Henkel said. Ingersoll-Rand fell the most in more than seven years on concern that commercial construction, tied to two-thirds of Trane's revenue, may decline following the U.S. housing slump.

``Investors more bearish than we are on domestic non- residential may view the deal as ill-timed,'' David Raso, a Citigroup analyst, wrote in a report today. He rates Ingersoll- Rand ``buy.''

The deal is the biggest in Ingersoll-Rand's history and the third-largest involving a diversified industrial company, behind the $15 billion merger of AlliedSignal and Honeywell International Inc., and Tyco International Ltd.'s $12.2 billion purchase of AMP Inc., both in 1999.

`Last Big Step'

The purchase price is 1.18 times revenue. That compares with a ratio of 1.41 when Hellman & Friedman LLC purchased air- conditioning and ventilation maker Goodman Global Inc. for $2.61 billion in October, according to data compiled by Bloomberg.

Ingersoll-Rand, based in Hamilton, Bermuda, fell $5.58, or 11 percent, to $43.60 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest decline since April 14, 2000. Trane surged $8.04, or 22 percent, to $45.24, its largest-ever gain and highest price.

The company, which operates from Montvale, New Jersey, has sold some equipment divisions as it moves from heavy machinery to a broader industrial business, Henkel said. Doosan Infracore Co. of South Korea completed its purchase of Bobcat and other earth- moving equipment units earlier this month for $4.9 billion.

``We have been moving towards a diversified industrial company and this is the last big step,'' Henkel said in an interview. ``We replaced all of that revenue through Trane.''

Financing

Options to buy Trane, which last month changed its name from American Standard Cos. as the final step in a yearlong restructuring plan, surged on Dec. 14 to almost 12 times the previous 20 days' average on speculation it may be acquired.

The combination will lift earnings to $4 a share in 2008, more than Ingersoll-Rand's earlier forecast, according to the company, which earned $3.23 a share in 2006. The 2007 full-year profit target was raised to as much as $3.60 on Oct. 26 after the decision to sell Bobcat.

Ingersoll-Rand will use the Trane purchase to focus on developing heating and cooling systems for vehicles as well as buildings. Continued growth in office and shop construction in the U.S. has buoyed sales, helping to protect Trane against a slowdown in homebuilding.

The deal will be financed with $3.5 billion in cash proceeds from the Bobcat sale, $2.6 billion in new Ingersoll- Rand equity, and $3.8 billion in new debt, he said.

LBO Slowdown

The pace of deals has slowed 33 percent since the end of June as leveraged buyout firms, responsible for half of this year's 10 biggest purchases, face financing costs that have more than doubled since June to the highest in four years.

``This is the sort of deal that would've been done by a buyout consortium eight or nine months ago,'' said David Kreisler, a partner with Weil Gotshal & Manges LLP in Boston, who works with private-equity firms. ``With the credit markets the way they are, a deal of this size is not getting done by private equity right now.''

Credit Suisse, Goldman, Sachs & Co. and J. P. Morgan Securities Inc. served as financial advisers to Ingersoll-Rand, and Simpson Thacher & Bartlett LLP served as its legal adviser.

The agreement, signed Dec. 15, includes a $315 million fee if either company backs out of the sale, Henkel said. The offer may be too high to draw competing bids, said Michael Jaffe, an analyst with Standard & Poor's in New York.

Cost Savings

Trane forecast $9.8 billion in revenue by 2010, with about $6.8 billion coming from commercial sales.

Ingersoll-Rand is battling for market share with United Technologies Corp.'s Carrier division, the world's largest maker of air conditioners with $13.5 billion in sales, and Japan's Daikin Industries Ltd., the second-largest.

Merging and integrating Trane's operations will result in cost savings of more than $300 million by 2010, Ingersoll said. The combined company is expected to generate more than $1 billion in cash next year, Henkel said.

Trane, which provides heating and cooling equipment to the Statue of Liberty and the Kremlin in Moscow, was founded as a heating-products maker in 1913 by James Trane, an immigrant from Norway who settled in La Crosse, Wisconsin, according to the company's Web site. It purchased General Electric Co.'s air- conditioning division in 1982 for $135 million, and was folded into American Standard two years later.

Trane employs more than 29,000 people, mainly specializing in heating, ventilation and air-conditioning. Lazard served as financial advisers to Trane, and Skadden, Arps, Slate, Meagher & Flom LLP served as its legal adviser.

Separation Plan

Chief Executive Officer Frederic Poses split the company into three parts this year to focus on heating and cooling products, its largest and most profitable business. He sold the struggling bath-and-kitchen unit to Bain Capital Partners LLC for $1.76 billion in October, and spun off the Wabco Holdings Inc. vehicle-control unit in July.

``Our separation plan did not contemplate the sale of Trane,'' Poses wrote in a letter to employees filed with the U.S. Securities and Exchange Commission. ``We believed that Trane would be a successful independent company.''

The purchase will probably close late in the first quarter or early in the second, subject to regulatory and shareholder approval, today's statement said.

To contact the reporter on this story: Courtney Dentch in New York at cdentch1@bloomberg.net; Lee Spears in Beijing at lspears2@bloomberg.net.

Last Updated: December 17, 2007 16:15 EST