Kaminsky's Call: Could Other Companies Follow in ITT's Footsteps?
Morgan Stanley, Vice Chairman
Could the price action Wednesday in ITT, the defense contractor, spur a break-up boom? If the bankers have any say, the answer is probably yes, and here's why.
ITT shares jumped 16 percent Wednesday as investors realized that the sum of the its parts were obviously much greater than the whole. Perhaps history was on their mind. I am told from people close to the matter that Varian's and Rockwell's stock performance after those companies split, is what inspired ITT's board to act.
Since Rockwell split in 2002, Rockwell Collins and Rockwell Automation have returned a respective 153 percent and 73 percent. Varian has done even better.
Since their split in 1999, Varian Medical Systems and Varian Semi EQMT have returned an astounding 1566 perecent and 666 percent, respectively to shareholders.
I remember sitting in ITT's CEO Steve Loranger's office three years ago when a hedge fund manager specifically pitched for the breakup of the company. I vividly recall believing in the thesis, and I too felt that a breakup would liberate the stock price. But I knew management wouldn't act then.
Fast forward to Thursday, and it's clear management was sick of seeing its stock trade a a huge discount to its asset value.
So what does this mean for other conglomerates that are trading at a similar discount? Could breakups be on the horizon for them too?
It's no coincidence that shares of Ingersoll-Rand, Danaher and United Technologies all finished up on the day.
But before you get too excited, some industry analysts don't expect ITT's competitors to follow suit anytime soon.
"It would be wrong to assume its rivals are in the same boat," said Sterne, Agee & Leach's Nicholas Heymann, whom I consider to be one of the sharpest analysts on the street.
"But what you are seeing in some of the conglomerates is that investors are seeing value there," Heymann said.
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