Pent Up No More: Pentair Spin Off Of nVent Set For April 30

Last year, we discussed Pentair’s(PNR) spin off of nVent(NVT) and commented on how much the strange capitalization was likely to add to the value. With the spinoff now set for the end of the month, it turns out that Pentair gave nVent more than just a bad name. As we had speculated, nVent borrowed $1 billion and will be giving almost all of it to its former parent. The company describes this in the final version of its information statement.

nVent Finance S.à r.l., which will be a wholly-owned subsidiary of nVent after the separation and which we refer to as “nVent Finance,” has issued $800.0 million of senior unsecured notes, consisting of $300.0 million of 3.950% senior notes due 2023 and $500.0 million of 4.550% senior notes due 2028. In addition, nVent Finance has entered into a credit agreement with a syndicate of banks providing for a five-year $200.0 million senior unsecured term loan facility, which we expect will be drawn upon prior to the completion of the separation, and a five-year $600.0 million senior unsecured revolving credit facility, which we expect will be undrawn upon the completion of the separation. Pursuant to these financing arrangements, we expect to have approximately $1.0 billion of indebtedness upon completion of the separation. In connection with the separation, nVent Finance will transfer to Pentair all cash in excess of $50.0 million of nVent and its subsidiaries, including cash from the net proceeds of this indebtedness, as consideration for the contribution of the assets of the Electrical business to nVent Finance by Pentair. We expect that Pentair will use the proceeds of such cash transfer to repay certain outstanding debt of Pentair.

For a company that did just $2.1 billion in revenue in 2016, the debt load may prove to be a difficult burden to bear. Pentair’s Board approved the spinoff of nVent Electric on April 3. Shareholders of record on April 17 will receive one share of nVent for each share of Pentair they own on April 30. nVent stock will begin trading under the ticker NVT on May 1. Pentair will use the cash it receives to pay down its own debt, which should leave it with much cleaner balance sheet.  The distribution of nVent shares is expected to be tax free to shareholders.

Current Pentair CEO Randall J. Hogan will be spinning off himself and will have no further role at Pentair, but will be Chairman of nVent. Hogan is, of course, excited about the prospects of both companies.

“Today marks an important milestone as nVent and Pentair move closer to becoming two independent companies,” said Randall J. Hogan, the current Chairman and Chief Executive Officer of Pentair, who will leave Pentair to become nVent’s Chairman following the spin-off.  “We expect both Pentair and nVent to benefit from well-recognized brands, attractive margin profiles, strong free cash flow generation and compelling opportunities for long-term, sustainable growth.”

 

Disclosure: The author holds no shares of any stock mentioned