Pentair CEO wishy washy on Peltz’s M&A ‘suggestions’
Cash on hand: "So, if we don't use it in acquisitions, we probably should do something with it to return to shareholders. But, I'm guessing that we probably will use it to do some acquisitions."
by Ronald Orol
Activist fund Trian Fund Management LP's Nelson Peltz on Tuesday launched an activist campaign at Pentair plc (PNR), urging the company to make more acquisitions and change the way it compensates its executives.
Trian, which reported owning a 7.2% stake in Pentair, said in a regulatory filing that officials from the activist fund have met with the industrial manufacturer's chairman and CEO, Randall Hogan, and other top officials to tell them the company can create significant value by facilitating "prudent industry consolidation" through mergers. It also believes the company should "continue to generate standalone organic revenue growth."
In a statement Tuesday, Pentair said it welcome Trian's "constructive input." It added that Pentair "remains focused" on working with Trian and other shareholders to raise shareholder value.
Pentair's shares were up 5% in pre-market trading at $67.55, after closing Monday at $64.43 a share. The company has a market capitalization of about $12 billion. Hogan is located at the company's main offices in suburban Minneapolis, where the firm was founded, but the company re-domiciled to Ireland in 2013 to lower its corporate tax rate. It's centrally managed in the U.K., according to a spokewoman.
Trian's latest activist campaign comes soon after Peltz failed to get himself or any of Trian's dissident candidates elected to the board ofE. I. du Pont de Nemours and Co. (DD). Though he didn't get on the board, his campaign wasn't without impact. Peltz had urged the giant target company to divest a unit and DuPont said it would spin off its performance chemical business before the proxy contest came to a head.
There's no shortage of potential targets for Pentair, including a number of companies with depressed valuations due to their exposure to the struggling energy sector--for instance, valve manufacturers for energy companies are now available at a discount. But if Pentair isn't sure about when the energy sector might recover, it is more likely to pursue companies with greater exposure to the chemicals, aerospace, water and other industrial sectors.
Among the potential targets for the company are Graham Corp. (GHM) of Batavia, N.Y., a $210 million market cap maker of components used in chemicals and paper markets. In a similar price range Pentair could also look to Montreal-based Velan Inc. or British company Porvair plc.
Privately-held potential targets include Canada water and wastewater valve maker Singer Valve Inc., Val-Matic Valve & Manufacturing Corp. of Illinois and Germany's Broer Group.
At a recent industry conference, Pentair's Hogan suggested thatthe company may use some of its roughly $800 million in cash on hand to make acquisitions -- comments that indicate he and Peltz may see eye to eye on at least some of the company's M&A strategy going forward. Hogan said his ambition is to be a $20 billion market capitalization company with over $10 billion in sales. Hogan said he would like to "build out" in both the "food space" and the "general industrial space" through bolt-on acquisitions.
"So, if we don't use it in acquisitions, we probably should do something with it to return to shareholders. But, I'm guessing that we probably will use it to do some acquisitions," he said.
In addition, Trian wants to see Pentair make changes to its incentive compensation programs to improve its ability to "attract, retain and incentivize executives and key employees." An Institutional Shareholder Services Inc. QuickScore report on Pentair, obtained by The Deal, highlighted a number of concerns about executive compensation, including that the CEO's outstanding equity awards automatically accelerate on a change-of control.
— Lou Whiteman contributed to this report