Pentair, Tyco Flow Control Unit to Merge Into $7.7B Co.

Tyco International shareholders will own 52.5 percent of the merged entity, and Pentair shareholders will own 47.5 percent; Wall Street responded favorably to the news, sending shares for both companies to a 52-week high on Wednesday.

Pentair, Inc., will merge with the flow control division of Switzerland-based Tyco International, Ltd.-thus creating a $7.7 billion company, Pentair and Tyco announced Wednesday.

The deal, which comes at a time when Tyco is breaking itself into three parts, values Tyco's flow control unit at about $4.9 billion and includes the assumption of $275 million of Tyco debt and $94 million of minority interest.

Tyco shareholders will own 52.5 percent of the merged entity, and Pentair shareholders will own 47.5 percent. The deal is expected to close by the end of September.

Wall Street responded favorably to news of the merger. Shares for both companies hit a 52-week high on Wednesday. Pentair's shares closed up 15 percent at $46.32, and the company was the biggest gainer among all companies traded on the New York Stock Exchange on Wednesday.

The combined company will be incorporated in Switzerland, but its main U.S. office will be in Golden Valley-where Pentair is now based. It will employ roughly 30,000 employees worldwide-about half of whom will come from Pentair.

Pentair Chairman and CEO Randall Hogan will serve as chairman and CEO of the merged company, and the Pentair executive team will become the senior executive team of the merged organization. The board of directors will include Pentair's current board members, along with two new directors designated by Tyco.

Tyco's flow control unit designs, sells, and services valves and controls for energy markets, general process industries, and mining and water markets. It also designs, installs, and services heat management systems for the energy and general process industries, and for water transmission pipelines and other water and wastewater products.

The merger is expected to add 40 cents per share to Pentair's adjusted earnings in 2013. It will also result in a one-time charge of about $230 million over the next year or two. But the companies said they expect to achieve annual synergies of $250 million by 2015, and earnings per share for the combined company are anticipated to exceed $5 by then.

“We believe that by combining with Tyco Flow, we can unlock substantial synergies, meaningfully increase our global presence, and better serve our customers with a broader offering and expanded capabilities,” Hogan said in a statement. “The new Pentair will be well positioned to benefit from the increased demands on energy, water, infrastructure, and industrial process resulting from the growing population and wealth of developing economies.”

Hogan told the Star Tribune that his team approached Tyco toward the end of last year about the possibility of a merger and said the deal “fits strategically to a T.”

“It really extends us to be a leader in the energy and industrial space for both water and fluids,” Hogan told the Minneapolis newspaper. “These are going to be big drivers as 4 billion people in the world demand a better quality of life.”

Citing Pentair and Tyco, the Star Tribune reported that being domiciled in Switzerland will give the merged company tax advantages: The new Pentair's estimated annualized tax rate globally will reportedly fall to 24 to 26 percent from the 29 percent Pentair is now paying.

Pentair is among Minnesota's 20-largest public companies based on revenue, which totaled $3.5 billion in 2011. Pentair's water group provides products and systems used worldwide in the movement, treatment, storage, and enjoyment of water. Its technical products group designs and manufactures thermal management products and standard, modified, and custom enclosures that protect sensitive electronics.