Pentair Inc. (NYSE: PNR), a diversified industrial company, will merge with Tyco International Ltd.'s (NYSE: TYC) flow control business in a deal expected to generate significant savings as it seeks to expand its emerging markets business, the companies said Wednesday.
The all-stock transaction, which is tax-free for shareholders, values the Switzerland-based Tyco's flow unit at approximately $4.9 billion. The market capitalization for Pentair, a global manufacturer based in Golden Valley, Minn., is about $4 billion.
The deal to combine the water treatment, storage and filtration systems of the two companies is expected to be completed by September.
Last May, Pentair bought Clean Process Technologies for about $705 million in a move that was expected to increase its exposure to emerging markets, according to The Wall Street Journal.
Shareholders of the Swiss manufacturer will own approximately 52.5 percent of the combined company, which will be called Pentair and is expected to generate $7.7 billion in revenues in 2012, while shareholders of the Minnesota company will own about 47.5 percent of the entity.
Tyco is spinning off the unit as a part of a plan announced last year to split the company into three businesses. The new, combined Pentair-Tyco entity will be controlled by the current executive team of the Minnesota-based company, led by CEO Randall J. Hogan.
Two new directors designated by Tyco will join the existing board of Pentair to oversee the new company.
While Tyco could have spun off its unit as an independent, publicly traded company, it decided to partner with Pentair because of synergies, according to CEO Ed Breen.
Breen expects the synergies, expected generate savings of about $250 million annually, to be fully realized by 2015.
Other benefits of the merger listed by the companies' press release are a strong combined balance sheet, a robust portfolio of complementary products and customer solutions, increased scale and access to fast growth regions and broader presence in key sectors.
Investors of the two companies have reacted positively to this news.
In premarket trading, shares of Tyco rallied 2.8 percent while shares of Pentair surged 18.6 percent.