Ingersoll Sets Bobcat Free

The industrial outfit is getting an eye-catching $4.9 billion for the mini-excavator and other businesses. What will it do with all that cash?

The versatile Bobcat can handle a lot of jobs -- like loading and excavating -- but apparently it can't steer clear of the ups and downs of the construction biz. Ingersoll-Rand (IR), an industrial conglomerate trying to turn its back on more cyclical businesses, will unload several divisions, including its well-known Bobcat brand, for $4.9 billion.

The bid by Doosan Infracore, a South Korean firm, exceeds almost all estimates. When Ingersoll announced its plan to sell off Bobcat, many analysts were expecting a price of $3.5 billion or lower. "It was valued very highly by a strategic buyer," says Eli Lustgarten, an analyst at Longbow Research.

The divisions to be sold — including Bobcat and utility equipment and attachments businesses — had revenues of $2.6 billion last year. They make compact equipment, including loaders, mini-excavators, generators and other products.

Ingersoll-Rand is trying to "reshape the portfolio into a less cyclical, more sustained growth portfolio," Lustgarten says. That means off-loading the Bobcat division because it gets about half its revenue of the housing industry, now in a steep downturn. The firm sold its road paving division, another cyclical business, for $1.3 billion in April.

With 43,000 employees, Ingersoll makes a wide variety of industrial machinery, climate control products and security equipment. On Friday, the company announced earnings of 95 cents per share, excluding the sale of the road paving business, in the second quarter. Revenues were up 9% from the year before.

"The magic question," Lustgarten says, is how Ingersoll uses the proceeds of this year's sales, which total more than $6.2 billion.

This year Ingersoll's board approved a $2 billion stock repurchase program and then doubled it in May to $4 billion. With the extra proceeds from the Bobcat sales, will that go higher?

In a statement, the firm said it would use the proceeds to make acquisitions, fund organic growth and continue its existing stock buyback program. "We have created immediate value for our shareholders and unlocked significant capital to drive long-term growth," said chairman, president and chief executive Herbert L. Henkel.

Analysts have predicted extra cash from a Bobcat sale would make Ingersoll-Rand an attractive buyout target for a private equity firm. Bear Stearns analyst Ann Duignan wrote in June "management should consider accelerating share repurchases, or risk a takeover."

A buyout remains a possibility, despite the difficulty dealmakers might have with leverage buyouts. Mounting concerns about credit markets, and their reduced appetite for big buyout deals, led to last week's big sell-off on Wall Street.

Another possibility is that Ingersoll could make a big acquisition of its own, Lustgarten says.

By mid-afternoon on Monday, Ingersoll-Rand stock was up more than 8%. The firm's earnings mostly met analysts' expectations, but the stock lost more than 7% in the general market sell-off on Thursday and Friday. Still, the stock is up almost 33% for the year.

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