Ingersoll-Rand, the maker of Thermo King refrigerated trucks, has agreed to buy cooling systems manufacturer Trane for $10.1 billion (R70 billion) in cash and stock.
Bermuda-based Ingersoll-Rand said yesterday it would pay $36.50 in cash and 0.23 of a share for every share in Trane. That values the US-based air-conditioner maker's shares at $47.81 based on Friday's closing price. Ingersoll-Rand would take on $150 million of debt.
Chief executive Herbert Henkel said the purchase would create a company with $17 billion of annual sales, more than half coming from the heating and cooling business.
Ingersoll-Rand this month completed the sale of its Bobcat construction machinery unit, shifting its focus to refrigeration systems amid rising trade in frozen foods and growth in commercial construction.
"The market for transporting food is very strong," said Sanjay Jha, a London-based analyst at Pali International. "That's what Trane is good at. As food is increasingly being transported around the world, the demand for mobile air-cooling systems has been growing."
Ingersoll-Rand is paying 29 percent more than Trane's closing price on Friday. The purchase price is equal to 1.18 times annual revenue.
That compares with a ratio of 1.41 when Hellman & Friedman purchased air-conditioning and ventilation maker Goodman Global for $2.61 billion in October, Bloomberg data shows.
Options to buy Trane surged on Friday to almost 12 times the previous 20 days' average on speculation the company might be acquired, and the shares gained 4 percent. Ingersoll-Rand fell 2 percent to $49.18.
The combination would lift earnings to $4 a share next year, more than Ingersoll-Rand's earlier forecast, according to the company, which earned $3.23 a share last year. It raised its full-year earnings forecast in October after deciding to sell off its Bobcat unit.
Continued growth in office and shop construction in the US has buoyed air conditioner sales, helping to protect Trane against a slow down in homebuilding. Commercial construction generates two-thirds of Trane's revenue.
Henkel said: "This acquisition represents a significant next step in Ingersoll-Rand's decade-long transformation to become a leading global diversified industrial company."
Growth in the refrigeration and cooling market is attracting investment among rivals. Japan's Daikin Industries, the world's second-largest maker of air conditioners, plans to boost production capacity at a plant in the Czech Republic by about 67 percent to 1 million units a year, to meet demand in the region.
United Technologies' Carrier division is the biggest air conditioner maker, with $13.5 billion in annual sales.
Trane, which last month changed its name from American Standard, was founded as a heating-products maker in 1913 by James Trane, an immigrant from Norway who settled in La Crosse, Wisconsin, according to the company's website. It purchased General Electric's air conditioning division in 1982 for $135 million, and was folded into American Standard two years later. It employs more than 29 000 people, mainly specialising in heating, ventilation and air conditioning systems.
The purchase would probably close late in the first quarter or early in the second quarter of next year, subject to approval by regulators and Trane shareholders, yesterday's statement said.
Ingersoll-Rand said earlier this month that Doosan Infracore of South Korea had completed its purchase of the Bobcat and other earth-moving equipment units for $4.9 billion. Earlier this year, it sold a unit that makes road-building equipment for $1.3 billion. It agreed in July to sell Bobcat.