Industrial tool maker,
Illinois Tool Works Inc.
) has decided to sell its Industrial Packaging segment to the
Carlyle Group for $3.2 billion. A definitive agreement has been
signed between the two parties, with the transaction expected to
be completed by mid 2014.
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Investors reacted positively to the news with the share price
edging up 0.7% over the previous day at the end of the trading
session on Feb 6, 2014.
Earlier, in Sep 2013, the board of directors had approved of the
sale of the company's Industrial Packaging business. The decision
was consistent with the company's key enterprise initiatives.
Illinois Tool Works expects earnings impact from the divestiture
to be neutral, as it plans to negate the earnings dilution from
the sale with accretive share buybacks. As many as 50 million
shares are intended to be repurchased under the existing
authorization by the end of 2014 (roughly 14 million have already
been repurchased in 2013) using primarily free cash flow, part of
sales proceeds and additional funds.
This move is the second of its kind in a row after Illinois Tool
Works divested its Decorative Surfaces division in Oct 2012. The
business sale fetched the company roughly $1.05 billion along
with a 49% stake in Wilsonart International Holdings, LLC, a new
company formed after the divestment.
Strategic sale of the not-so-profitable businesses is a part of
the company's portfolio management strategy. It works well for
the future growth of the company by freeing resources that can be
invested for the development of its core businesses. Since 2011,
Illinois Tool Works has divested roughly 20 non-core businesses.
By 2014, the company aims at divesting roughly 25% of 2011
Illinois Tool Works currently has a $34.2 billion market
capitalization and carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the industry include
Altra Industrial Motion Corp.
Barnes Group Inc.
). All these companies hold a Zacks Rank #2 (Buy).