Under the plan, Ingersoll Rand’s existing commercial security business (currently known as the Security Technologies sector) will be combined with its residential security business (currently part of the residential solutions sector) to form a leading global safety product and services provider. This new company’s portfolio of brands will include Schlage, LCN, Von Duprin, Interflex, CISA, Briton, Bricard, BOCOM Systems, Dexter, Kryptonite, Falcon and Fusion Hardware Group.
The new company will have annualized revenue of approximately $2 billion on a pro forma basis based on 2011 revenues. The new security company is expected to generate strong free-cash flow and have the financial flexibility to take advantage of future growth opportunities.
The new security company is also expected to have strong margins, as well as strong brand recognition and market-leading products and solutions, to set a solid foundation for future growth. The company will benefit from synergies in sourcing, technology, and assembly operations across the residential and commercial security markets. It also will have the opportunity to invest in key markets to take advantage of growing trends around increased security concerns, electronics connectivity, product life-cycle costs and rapid demand growth in emerging markets.
Execution of the transaction requires further work on structure, management, governance and other significant matters. Management is developing detailed plans for the board’s further consideration and approval. The leadership team of the new security company will be announced prior to the completion of the spin-off. Upon completion of the spin-off, Ingersoll-Rand plc will cease to have any ownership interest in the new security company, and the new security company will become an independent publicly traded company. The new security company is anticipated to be an Irish plc.
The completion of the spin-off is subject to certain customary conditions, including receipt of regulatory approvals, receipt of a ruling from the U.S. Internal Revenue Service as to the tax-free nature of the spin-off, as well as certain other matters relating to the spin-off, receipt of legal opinions, execution of intercompany agreements, effectiveness of appropriate filings with the U.S. Securities and Exchange Commission, and final approval of the transactions contemplated by the spin-off, as may be required under Irish law. The company noted that there can be no assurance that any separation transaction will ultimately occur, or, if one does occur, its terms or timing.
Ingersoll Rand also announced a revised capital structure and allocation strategy designed to improve efficiency and return additional capital to shareholders through the following actions authorized by the Board of Directors:
- An increase in the level of overall indebtedness and leverage ratio while still preserving a solid investment grade credit rating.
A new share repurchase program of up to $2 billion of the company’s ordinary shares. The share repurchase program will begin in 2013, with an expected completion in the first quarter of 2014. The timing of the program will be dependent on the company’s access to the capital markets, available liquidity and cash flow, and general market conditions. The repurchase program may be executed through various methods, including open market repurchases.
The declaration of a quarterly dividend of 21 cents per ordinary share, reflecting an increase of 31 percent. The dividend is payable March 28, 2013, to shareholders of record on March 12, 2013. Upon completion of the transaction, Ingersoll Rand and the new security company are initially expected to pay a combined quarterly dividend approximately equal in sum to the Ingersoll Rand dividend at the time of closing.