Activist investor Nelson Peltz said his Trian Fund Management has picked up a stake of more than 7 percent in Ingersoll Rand Plc to push changes at the manufacturer of air conditioners and security systems.
Ingersoll's shares rose more than 5 percent Wednesday, to their highest level since July 2011.
Peltz said Ingersoll's stock was undervalued and he wants to talk to company management and its board about pursuing strategic alternatives, including a restructuring of its key segments.
Trian owned 21.07 million shares in the company as of May 1, a regulatory filing showed.
The California State Teachers' Retirement System, or CalSTRS, disclosed a holding of more than 800,000 shares as part of the joint filing.
Trian wants Ingersoll to raise its operating margins closer to the level of peers and to consider using debt to fund a more aggressive stock buyback, according to the regulatory filing. Trian also said it seeks more independent directors on Ingersoll's board and thinks executive pay needs to better reflect performance.
Ingersoll makes industrial air compressors, security systems and golf carts but its biggest business is heating and cooling systems as a result of its 2008 purchase of Trane. Its competitors include United Technologies' Carrier unit and Lennox International.
Analysts said Ingersoll's air conditioner and security businesses fit together so the likely focus for future divestitures would be the industrial business that includes air compressors and golf vehicles.
Longbow analyst Eli Lustgarten said Ingersoll deserves credit for improving operations in recent years under Chief Executive Mike Lamach, but the company is heavily reliant on still-weak U.S. construction markets.
"There are businesses that could be (sold) to raise cash," Lustgarten said, but tax consequences may make such sales unappealing. Ingersoll trades at a premium to industrial peers like Caterpillar, Eaton and Parker Hannifin , because Ingersoll's late-cycle earnings recovery is just getting started.
Ingersoll's market capitalization is about $12.7 billion.
In recent months, billionaire investor Peltz had revealed stakes in companies ranging from PepsiCo to Heinz and State Street Corp, in an effort to push changes. In some cases, Trian has sold its investments soon after, as happened with Pepsi.
"We welcome, respect and appreciate the constructive views of all of our shareholders," Ingersoll spokeswoman Misty Zelent told Reuters.
Ingersoll stock could reach $50 once earnings recover, said analyst Brian Langenberg of Langenberg & Co, who added that the company's current profit forecasts would be hard to miss.
"It probably doesn't hurt to have an astute investor directly involved," Langenberg said. "They should absolutely listen to him. I don't think they necessarily have to."
Ingersoll's stock was up $2.28 to $44.55 in late afternoon trading on the New York Stock Exchange.
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