EUR 459.35 For Business Accounts Only

IR & GDI: Enter/Buy Ahead of RMT on Index Inclusion

In-line with the previous successful Spinoff of its commercial and residential security business Allegion Plc (ALLE, which has more than doubled its share price since listing), Ingersoll-Rand Plc (IR) is prepared for its Reverse Morris Trust (RMT) transaction of its Industrials business to be merged with listed Gardner Denver Holdings, Inc. (GDI), which will become a global leader in mission-critical flow creation and industrial technologies.

The Edge View...
As a result of this RMT, Ingersoll-Rand Plc (IR) will rename to Trane Technologies Plc (TT) and will be a pure-play climate controls business. We believe this transaction strengthens TT’s position, complete with a premium over other conglomerate HVAC peers. The RMT will see a tax-free share allocation in the new Spin-merged entity (which will take the Ingersoll-Rand name and ticker), wherein current IR shareholders will hold 50.1% of shares and existing GDI shareholders will retain 49.9% of shares on a fully diluted basis.

Trane Technologies (TT, Parent): After Spinning off the Industrials business, TT will likely experience a higher re-rating compared to its climate peers. The resulting pure-play dynamics in the climate industry will help Trane in expanding its organic sales and margins. Furthermore, as a by-product of the RMT, TT shareholders will also benefit from the positive synergies and increased scale of the Spin-merged IR (merged NewCo) due to holding 50.1% via the distribution. The $1.9bn cash transfer from the Spin-merged business to Trane will also help to reduce leverage and provide additional firepower to raise dividends, increase share buybacks or seek out lucrative acquisition targets.

Ingersoll Rand (IR, Spin-Merged Entity): The completion of IR’s Industrial business merger with GDI (and resulting rename to Ingersoll-Rand and use of the IR ticker) will propel the company to the second largest of global manufacturers of industrial pumps/compressors, behind only Swedish firm Atlas Copco AB (ATCOA SS). Additionally, the increased contribution from Industrials to the top-line will help augment the value of IR (post-RMT) on an SOTP basis, as the overall value of the company is currently bogged down by muted energy comps. We believe the combination will nearly double IR’s (post-RMT) market cap to $17bn to $18bn, significantly raising the likelihood of its inclusion in the S&P 500 Index, which will expand its overall investor base to potential large portfolio managers/institutional investors.