Diversified industrial company Pentair said Wednesday that it's combining its operations with Tyco's flow control business in an all-stock deal worth about $4.53 billion, uniting two of the biggest players in water and fluid products systems.
Under the terms of the deal, which is subject to shareholder approval, the combined company will retain the Pentair Inc. name and Pentair's CEO will remain in place. Two Tyco International Ltd. nominees will join the board.
Tyco shareholders will own about 52.5 percent of the combined company and Pentair shareholders will own about 47.5 percent, the companies said.
The news sent Pentair's shares up $5.92, or nearly 15 percent, to $46.18 in afternoon trading, while Tyco International Ltd. shares rose $1.67, or 3.1 percent, to $55.20.
The move is part of plan announced by Tyco last year to break itself up into three independent companies, including one for flow control products. The business sells valves and controls for the energy, mining and water markets. It also designs and installs heat management systems for the energy and general process industries.
The deal with Pentair is subject to the completion of the breakup, which Tyco said it still expects to complete by September.
Pentair said the addition of Tyco's business will boost its global reach and give it greater access to developed and fast growth regions, while also allowing it to capitalize on growth trends in the energy, infrastructure and industrial sectors.
Minneapolis-based Pentair's water and fluid solutions business makes products and systems for use in the movement, storage and treatment of water for residential, industrial, commercial, municipal, and agricultural uses.
Pentair said it expects the deal to boost its 2013 adjusted profit by about 40 cents per share and help its annual profit pass $5 per share by 2015, largely as a result of cost cuts. At the same time, the company expects to incur about $230 million in one-time costs related to the deal over the next one to two years.
The deal prompted Moody's Investors Service to place the debt rating of Pentair on review for a possible upgrade. Pentair's senior unsecured debt is currently rated "Baa3" by Moody's, the lowest investment-grade rating. Moody's said its review "will focus on the prospect of a sound integration of the two companies" as well as Pentair's plans to reduce debt.
The combined company will be based in Switzerland, where Tyco is currently incorporated, with its main U.S. offices in Minnesota, where Pentair is based. It will have about 30,000 employees worldwide, with about half coming from each company.
The companies said the deal values Tyco's flow control business at $4.9 billion, including $275 million in debt and $94 million in minority interest.