New York activist investor firm Trian Fund Management has bought 7.24 percent of Pentair PLC stock and now wants to see more acquisitions from the global manufacturer of pumps, valves and filtration equipment.
In a U.S. Securities and Exchange Commission filing, Trian Management CEO Nelson Peltz and other managers said the group made the purchase “because they believed that the shares were undervalued in the marketplace and represented an attractive investment opportunity.”
Peltz, who recently made headlines for a proxy battle he ignited with DuPont, said his group “has met and engaged in constructive discussions with” Pentair CEO Randy Hogan and Chief Financial Officer John Stauch. The Trian group “communicated its view that [Pentair] can create significant value for its shareholders by facilitating prudent industry consolidation through accretive mergers and acquisitions.”
Pentair officials have talked about making more acquisitions, so it appears the two entities are aligned in some areas.
However, Tuesday’s SEC filing went on to recommend Pentair improve its profit margins, organic revenue growth and incentive pay program for management. Trian officials also said they expect to continue “constructive” discussions with Pentair’s executives and board of directions about the direction of the company. Trian “may also seek board representation,” the filing said.
News of Trian’s SEC filing and stock purchases shoved Pentair’s stock up 6.7 percent to close at $68.75 on Tuesday. For the past month, the stock had traded between $61 and $63 a share.
Pentair, which is technically headquartered in Ireland but managed out of Golden Valley, doubled in size in 2012, following the purchase of Tyco International’s pipe and valve business. Annual revenue is now $7 billion.
Now that Tyco’s integration is complete, stock analysts and activist investors are wondering what’s next? Recently, Pentair’s revenue and profits have been hamstrung by the depressed oil and gas market and negative currency translations. In February, Pentair downgraded its outlook for the year.
Pentair officials declined to comment on the Trian matter beyond a statement issued Tuesday.
“Pentair is committed to maintaining an active, engaged dialogue with all of our shareholders, including Trian, and we welcome its constructive input. Pentair remains focused on working with Trian and other Pentair shareholders toward our common goal of enhancing shareholder value.”
Hogan told analysts in late May at a Sanford C. Bernstein and Co. investor conference that growth plans include small and “bolt-on” acquisitions.
“There are quite a bit of interesting private or private-equity owned properties that would fit our strategy today,” Hogan said. “We particularly want to build out in the food space and in the general industrial space, where we think there’s still a lot of opportunities to create good value.”
Ultimately the goal is to become an industrial giant with more than $10 billion in sales and a market cap that will rise from $12 billion today to $20 billion down the line, he said.
Trian’s interest in Pentair is the latest in a whirlwind of activity by activist investment firms that gobble up 3 to 10 percent of a company’s stock and then make “recommendations” or demands that can boost financial results and shareholder returns.