NEW YORK (Reuters) - Industrial machinery maker SPX Corp SPW.N has outbid private equity firms competing to buy Gardner Denver Inc (GDI.N) by a wide margin, offering to pay more than $4 billion for the rival, according to two people familiar with the matter.
Gardner Denver shares gained 5 percent to an eight-month high of $72.98, valuing the company at $3.6 billion, as investors clung to some skepticism about SPX’s audacious move to pay top dollar to acquire a competitor with a higher stock market value.
Private equity firms Advent International, KKR & Co LP (KKR.N), and a consortium of TPG Capital LP and Onex Corp OCX.TO made all-cash offers in the mid-to-high $70s per share range, the people said on Wednesday. But SPX has topped those bids by offering substantially more, they said.
Based on Gardner Denver’s 49.1 million outstanding shares, the private equity offers in the mid-to-high $70s per share range would have represented an equity value for Gardner Denver between $3.6 billion and $3.9 billion.
The SPX offer was so much higher that Gardner Denver canceled management meetings with private equity bidders that were initially set for this week and did not even seek second-round offers, the people said. Instead, it turned to SPX for one-on-one discussions with the goal of finalizing a deal before the end of the year, they said.
The people spoke on condition of anonymity because the matter is confidential. SPX, Gardner Denver, KKR, Advent and TPG declined to comment, while Onex did not immediately respond to requests for comment.
Shares of Charlotte, North Carolina-based SPX ended trading on Wednesday down 1.3 percent to $61.29 on the New York Stock Exchange, adding to a 9.2 percent decline on Tuesday and valuing the company at around $3.1 billion.
Shares of Wayne, Pennsylvania-based Gardner Denver rose as high as $75.15 before settling back to close at $72.98.
SPX Chief Executive Chris Kearney has worked over the past few years to focus the company on its flow control business, making equipment used in processing liquids ranging from petroleum to dairy products.
Gardner Denver makes compressors, pumps and vacuum products for industrial uses.
The exact SPX bid and deal structure could not be learned, but an aggressive offer by SPX could raise questions among investors, who punished the company’s stock after Reuters reported on Monday that it had entered exclusive negotiations to buy Gardner Denver.
SPX investors would be called on to approve any major issuance of shares by the company and many analysts have questioned whether any synergies between the two companies would justify SPX paying over $80 per share.
“We are not sure about the likelihood of such a transaction, but the implications for SPX shareholders are potentially game-changing, to say it lightly,” Barclays analysts wrote in a note on Tuesday.
SPX could be swapping lower growth and less competitively advantaged assets for what is considered to be a much higher-quality portfolio at Gardner Denver, the Barclays analysts added. A transaction of this size would put enormous risk on SPX’s management for integration and execution and test the patience of SPX shareholders, they added.
A deal with SPX would represent a huge premium to the $55 a share level that Gardner Denver’s shares traded at before Reuters reported news of a potential sale on October 25 but would pose a financial strain on SPX’s balance sheet.
Gardner Denver said on October 25 that it was pursuing strategic alternatives, including a sale of the company, confirming a Reuters report earlier in the day.
Reporting by Greg Roumeliotis and Soyoung Kim in New York; Editing by Gerald E. McCormick and Tim Dobbyn