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Illinois Tool to Sell Units After Push From Whitworth

Illinois Tool Works Inc. plans to sell commodity-tied businesses that make up a quarter of the company after Ralph Whitworth’s Relational Investors LLC took a stake earlier this year and pushed for moves to boost profit.

The units will be divested “at the appropriate time” over the next few years, the Glenview, Illinois-based company said today in a slide presentation for analysts and investors. The businesses lack “strong core competitive advantages necessary to sustain meaningful differentiation.”

Today’s divestiture plan builds on Illinois Tool’s decision in August to sell a 51 percent stake in its decorative-surfaces division for $1.1 billion. Relational disclosed its holding in January and said it had begun talks with management to increase earnings by paring the number of operating units at the maker of welding equipment, construction supplies and auto parts.

Illinois Tool’s plan also calls for consolidating business units, reducing the number to 150 from 800 while increasing the average revenue from each to $100 million from $25 million, according to the presentation.

The shares fell 3 percent to $59.82 at the close in New York. They climbed 28 percent this year, outpacing the 11 percent advance for the Standard & Poor’s 500 Industrials Index.

Relational’s 3.1 percent stake made it the seventh-largest shareholder as of Sept. 30, based on data compiled by Bloomberg. Illinois Tool reported $17.8 billion in sales in 2011.

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