Ingersoll-Rand’s spin-off plan may give boost to area

July 6, 2013

Carmel has quietly scored a big win, becoming the corporate epicenter for a newly formed New York Stock Exchange company with 7,600 employees and annual revenue of $2 billion.

Irish industrial conglomerate Ingersoll-Rand Plc is poised to spin off its security operations late this year into Allegion—which will have its North American headquarters and most of its executive team in Carmel.

IR already considered Carmel the headquarters for its Security Technologies division. But it was a small cog in a giant corporation with more than $14 billion in revenue. And it didn’t have the same concentration of executive firepower.

The new company includes Security Technologies, which focuses on commercial customers, combined with a smaller residential-security unit that had been part of IR’s residential HVAC business.

IR has been lining up top brass for the new company. Serving as chief financial officer will be Patrick Shannon, who formerly was IR’s treasurer. Barbara Santoro, an IR vice president, will be general counsel. Both will be based in Carmel.

IR—which expects to announce the CEO soon—is calling Allegion an Irish company and says it will have some corporate staff in Dublin. But company spokeswoman Misty Zelent called Carmel the company’s “corporate center.”

The Carmel office employs more than 400. In addition, an IR manufacturing plant at 2720 Tobey Drive in Indianapolis has 500 workers. That factory, which primarily makes Von Duprin door-exit devices for the Security Technologies division, has operated for more than a century.

Zelent said she had “no additional details to share” about the potential for more local jobs. But Carmel Mayor Jim Brainard is optimistic.

“While they haven’t committed to any new jobs in the headquarters, most headquarters operations tend to grow over time,” he said. “So we are pleased to have them in Carmel—and they could have left Carmel.”

Tim Monger, CEO of the economic-development group Hamilton County Alliance, said, “We have certainly been in touch, but any announcement regarding an expansion would really need to come from the company.”

He said IR’s current divisional headquarters has a hand in various products, not all of them security-related. He said Carmel’s key role with the new company is a testament to the city’s many strengths, including its highly educated work force.

Carmel may have activist investor Nelson Peltz partly to thank. IR announced the spin-off plan in December after Peltz amassed a 7-percent stake in the company. Peltz has a history of pushing conglomerates to split into smaller pieces to maximize value. In 2008, Cadbury Schweppes spun off its Dr Pepper Snapple Group at Peltz’s urging. And last year, Kraft followed his advice when it split apart its grocery and snack businesses.

Analysts think the strategy might work at IR, as well. Shareholders are set to receive one share of the new company for every three IR shares they own. Bernstein Research estimates the separate stocks together might be worth as much as $71 a share, a 28-percent premium to where Ingersoll-Rand now trades.

Allegion sells such products as Schlage locks and aptiQ electronic-access systems. Had it been a stand-alone company as of the start of 2012, Allegion would have posted profit of $222 million on $2.05 billion in revenue, a Securities and Exchange Commission filing shows.

Revenue rose just 1.2 percent from the prior year. However, analysts are expecting stronger growth ahead, in part because of the recovery of construction, especially in the United States, where the company generates nearly two-thirds of its sales.

It’s a global business, however, with aspirations to ratchet up growth in emerging markets. Allegion has its work force scattered across 35 countries, and it has 18 production facilities around the world.

In the SEC filing, management wrote: “We believe that the security products industry will benefit from several global macroeconomic and long-term demographic trends, which include heightened awareness of security requirements, increased global urbanization and the shift to a digital, interconnected environment.”

One cautionary note: Divestiture plans often draw out suitors. Allegion likely is worth about $4 billion, but might fetch far more in a sale to another player in the $30 billion security market, Steven Winoker, a senior analyst with Bernstein Research, said in a report.

“We do think Allegion may be an attractive acquisition candidate in a fragmented space for a number of consolidating companies,” Winoker wrote.

But as long as that doesn’t happen, Carmel appears poised to benefit from Allegion’s growth.

“With the new CEO, I imagine there are some decisions that might need to be made when that person comes on board,” Monger said. “So I guess I would say, ‘Stay tuned.’”•


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