Diversified manufacturer Ingersoll-Rand Plc (IR.N) said it will spin off its security business and buy back $2 billion of shares, yielding to pressure from activist investor Nelson Peltz to unlock more shareholder value.
The industrial conglomerate, which has a market value of about $15 billion and is best known for its heating and cooling systems, also raised its quarterly dividend by 31 percent to 21 cents per share.
The spinoff, buyback and dividend hike are part of a strategic review undertaken by Ingersoll after Peltz's Trian Fund Management LP acquired a 7 percent stake and proposed a breakup of the company.
Ingersoll plans to spin off its commercial and residential security businesses, which makes mechanical and electronic locks as well as steel doors, into a new public company within the next 12 months. The spun-off security company, whose portfolio includes brands such as Schlage, CISA, Kryptonite and Falcon, is expected to have annual revenue of about $2 billion.
Reuters reported on Sunday that Ingersoll would spin off its security technology division, buy back shares and raise dividends, citing people familiar with the matter.
"We believe the spin-off, which is the result of an in-depth review of strategic alternatives by our board and management, will allow both companies to enhance value by allocating capital and deploying resources," Chief Executive Mike Lamach said in a statement.
"Given the distinct strengths and strategies of the two proposed companies, the board believes that this structure will enable investors to value our different businesses separately," Lamach said.
Ingersoll said it will continue to focus on its air conditioning and heating and other industrial businesses, which will have annualized revenue of around $12 billion.
Peltz joined the company's board in August after three months of agitating for changes. Among other proposals, he suggested separating Ingersoll's main business units into three publicly-traded companies focused on air conditioning and heating, security, and the remainder of its industrials businesses.
Some analysts agreed, saying that Ingersoll's shares were undervalued because of its disparate businesses. Several other diversified conglomerates have also decided to break up over the past few years, often under pressure from activist investors.
Activist investor Ralph Whitworth pressured industrial conglomerate ITT Corp (ITT.N) to split up its defense and water purifying businesses. Other companies announcing break-ups or major divestitures include Tyco (TYC.N), Kraft Foods Inc (KRFT.O) and Fortune Brands (FBHS.N).
Ingersoll's biggest business is heating and cooling systems as a result of its 2008 purchase of Trane. It also makes industrial air compressors and golf carts.
Shares of Ingersoll rose 1 percent to $49.18 in morning trade on the New York Stock Exchange on Monday.
(Reporting by Soyoung Kim in New York and Mridhula Raghavan in Bangalore; Editing by Supriya Kurane and Nick Zieminski)