Nelson Peltz’s Trian Fund Management LP took a 7.3 percent stake in Ingersoll-Rand Plc and is seeking to meet with management about ways to boost the industrial group’s underperforming stock.
Trian controls the equivalent of 21.9 million shares, the New York-based hedge fund said in a filing today with the U.S. Securities and Exchange Commission. The firm said it plans to meet with members of the board and top executives of the Swords, Ireland-based Ingersoll-Rand.
“While the issuer has an attractive collection of businesses, total shareholder returns and profitability have lagged peers,” Trian said in the filing. The fund said it may seek changes such as “a restructuring of its key business segments.”
Ingersoll-Rand rose 7.1 percent, the most since November, to $45.28 at 2:48 p.m. in New York, giving Peltz’s stake a value of about $992 million. The stock had declined 17 percent in the 12 months through yesterday, compared with a gain of 1.3 percent by the Standard & Poor’s 500 Index.
Peltz, who is the largest investor in fast-food chain Wendy’s Co., is known for buying stakes in companies and then pushing them to increase their value by cutting costs or merging. Suggestions to Ingersoll-Rand may include “enhancing operating margins to levels comparable to those achieved in peer businesses,” using “prudent amounts of leverage” for share buybacks, and “steps to better align management compensation” with the company’s performance, the firm said.
Ingersoll-Rand would rank as Trian’s largest stake in a U.S. traded company, based on data in a Form 13F that the hedge fund filed on its holdings as of Dec. 31. At that time, Family Dollar Stores Inc. ranked as Trian’s biggest position with a market value of almost $575 million.
Trian had about $3.4 billion in assets under management as of Feb. 1, according to a March filing. Trian’s price objective for its investments is driven primarily by increasing earnings and cash flow, through higher sales and lower expenses, rather than by “financial engineering,” such as breaking up a company or recapitalizing it, according to the SEC registration.
Ingersoll-Rand manufactures and markets refrigeration and heating, ventilation and air-conditioning systems under the brand names Thermo King and Trane. The company’s other brands include Schlage and American Standard.
Ingersoll Rand Chief Executive Officer Mike Lamach last year pushed back his goal of boosting operating margins to 15 percent to 17 percent by 2013 from 9.7 percent in 2011 because of a lagging construction recovery, Nick Heymann, an analyst with William Blair & Co., wrote in a note today.
Lamach “has repeatedly stated that the goal of the company is to fix its businesses before considering changes to the company’s business portfolio,” Heymann said.
According to the SEC filing, Trian paid $582.2 million to acquire 14.3 million Ingersoll-Rand shares, which works out to an average price of $40.76 each. In addition, the hedge fund entered into option agreements with Nomura International Plc and Bank of America Merrill Lynch that permit Trian to acquire another 7.6 million Ingersoll-Rand shares from the two securities firms for $308.5 million.
Trian’s holdings include shares owned by the California State Teachers’ Retirement System, a public pension plan also known as Calstrs. The pension plan holds its own Ingersoll-Rand shares and also owns some through a Trian co-investment vehicle.
“Ingersoll Rand regularly and actively engages with all of our investors, and we welcome, respect and appreciate the constructive views of our shareholders,” Misty Zelent, a spokeswoman for the firm, said today in an e-mailed statement. “We believe that maintaining a dialogue with our shareholders helps inform us on ways to create further value for our organization.”
Jonathan Doorley, a spokesman for Trian, declined to comment.