ITT To Spin Off Divisions- Again

While some companies are new to spinning off divisions, others are known for their serial spinoffs. Few however, can match the fecundity of ITT(ITT)(nee International Telephone & Telegraph). ITT was born out of the Puerto Rico Telephone Company in 1920. Over the next half century, ITT was the classic conglomerate, buying such diverse companies as The Hartford Insurance, Continental Baking, Avis Rent-A-Car, Sheraton Hotels, and hundreds of others.

As conglomerates fell out of favor, ITT began divesting units. Its long distance telephone division would eventually become part of Worldcom. It spun off its for-profit education business as ITT Educational Services(ESI). In 1995, the company split into three publicly traded companies ITT Corp, which later sold off non-hotel businesses and merged with Starwood, The Hartford(HIG), and ITT Industries, which became the current ITT Corp.

Today, ITT announced it is at it again. The company plans to split into three independent publicly traded companies.

• Water Technology –

Following completion of the spinoff, a highly attractive, standalone water technology corporation with a new corporate brand name will be formed through the combination of three of ITT’s current businesses: Residential & Commercial Water, Flow Control and Water & Wastewater (including biological, filtration and disinfection treatment and analytics). These businesses are already known for solid operating results, leading market positions and strong product brand awareness, positioning the new water technology company for significant growth. This company will be a global leader, with the broadest suite of innovative equipment, systems and applications. The portfolio will span the transport, testing and treatment of water — focusing on the residential, commercial, municipal, agricultural, construction, building services, dewatering, beverage and leisure marine markets, as well as analytical instrumentation for water and wastewater, environmental, medical and beverage applications. The company is expected to benefit from an already strong installed base, driving attractive aftermarket opportunities, as well as a diverse global footprint with approximately 55 percent of revenues coming from international markets and strong emerging market growth prospects. Pro forma 2011 revenue for the future water technology business is estimated at $3.6 billion.

• Defense & Information Solutions –

Following completion of the spinoff, the existing Defense & Information Solutions segment will be renamed and rebranded as a new standalone company that is an industry-leading provider of innovative technologies and operational services to meet the enduring requirements of the global military, government and commercial customers. The company’s products and services will include premier technologies such as next generation night vision, integrated electronic warfare, networked communications, force protection, radar, global intelligence, surveillance and reconnaissance systems, composite structures, space-based satellite imaging, weather and climate monitoring, and navigation and imaging systems, as well as maintenance, engineering and professional services. The business will continue to focus on growth beyond the core Department of Defense customer, with nearly 30 percent of revenues already coming from adjacent markets, such as air traffic management, information and cyber security as well as strong international growth prospects. Pro forma 2011 revenue for the new defense and information solutions business is estimated at $5.8 billion.

• Highly engineered industrial –

Following completion of the spinoff, ITT Corporation will continue to be a diversified global manufacturer of highly engineered industrial products and high-tech solutions. Its global platform will include ITT’s current Industrial Process business, as well as its Motion Technologies, Interconnect Solutions and Control Technologies businesses. ITT Corporation will have leading market positions across an extensive portfolio of advanced technology industrial pumps, valves and control systems serving the oil and gas, mining, chemical, power generation, and pulp and paper markets. It will also have leadership positions in highly engineered products such as specialized and harsh-environment connectors, aerospace valves, actuators and components, as well as shock absorbers, brake pads and other energy absorption solutions. It is expected to have a revenue profile that is globally balanced. Its emerging-market growth prospects are outstanding, with nearly 60 percent of revenues coming from international operations and emerging markets. Pro forma 2011 revenue for the future ITT Corporation is estimated at $2.1 billion.

The company expects to complete the spinoffs before the end of 2011. The market has reacted quite positively the plan, with ITT stock trading up 23% in the pre-market.  With such a large gain, there will be less opportunity to profit from the value unlocked by the spinoffs, but it is certainly a situation that bears continued watching.

Disclosure: The author has no position in any stock mentioned.

Related articles

• ITT Corp. plans to split into three companies (marketwatch.com)
• ITT Corp. Splitting Into 3 Separate Companies (abcnews.go.com)