Invensys PLC has halted plans to shed two of its largest remaining units—its Climate Controls and Appliance Controls businesses.
The plan consists of a placement and open offer of 2.187 billion new shares at 21.5 pence (U.S. $0.399) for GBP 450 million (U.S. $836.172 million), GBP 625 million (U.S. $1,161.29 million) of high-yield bonds due in 2011 and new 5-year credit facilities totaling GBP 1.6 billion (U.S. $2.97 billion).
The share placing and open offer are being underwritten by Cazenove, Deutsche Bank, and Morgan Stanley.
Invensys had been in talks to sell its Climate Control and Appliance Control businesses as part of a divestment program made necessary by weak markets for its industrial products and a heavy debt load.
Despite selling eight businesses for a total of GBP 1.8 billion (U.S. $3.34 billion) in a first round of divestments that began in February 2002, debt still stands at around GBP 1.6 billion (U.S. $2.972 billion). Its net liabilities totaled GBP 916 million (U.S. $1,701.88) as of Sept. 30, 2003. Invensys also has a pension deficit estimated to be around GBP 700 million (U.S. $1,300.56).
The company had been under pressure to complete a major sale in order to dispense with a revolving credit facility by June, but negotiations were reportedly deadlocked because of price. Meanwhile, Invensys' ability to meet its debt payment obligations had been called into question after the company in October received only GBP 374 million (U.S. $694.838) for its Metering business, well below the price it was expected to receive.
Analysts welcomed news of a refinancing package, which resembles successful rescue packages that have been put together throughout the past year for companies such as Swiss-Swedish engineering group ABB Ltd.
"The Appliance and Climate Control businesses were the jewels in the crown," said Zafar Khan, analyst at SG Securities. He says both are "good margin businesses with good cash flow," and by retaining them, particularly at this stage in the business cycle, Invensys will enhance its earnings and improve its long-term prospects.
At the same time, he said terms of the new financing arrangements will help lift uncertainty about Invensys' finances and ensure the company "will have some money to invest in the business."
Mr. Khan said in light of the announcement, he's putting his fair value assessment and stock recommendations under review.
Goldman Sachs also put its recommendation of Invensys under review, saying the company is preventing earnings dilution by not selling Climate and Appliance Control. In a note to investors, it also said the refinancing could boost 2006 earnings per share by 15 percent to 2.20 pence (U.S. $0.409), though its analyst noted that Invensys' remarks on current trading don't "sound too promising."
Bond market sources said Invensys' high-yield bond offering is likely to be priced later this month, after a period of marketing to investors.
Invensys is rated Ba3 by Moody's Investors Service and BB by Standard & Poor's. Both agencies have a negative outlook on the company. Neither were immediately available to comment on the impact of the refinancing plan, but analysts said despite the improvement in liquidity, an upgrade isn't likely until Invensys's operations turn around.
"In the long run, selling assets at fire sale prices isn't the way to do it," said the hedge fund manager, adding that the company needs earnings-producing assets to help cover its large pension liabilities.
Climate Control, the largest unit that had been up for sale, was valued around GBP 700 million (U.S. $1,300.56 million), while Appliance Control was expected to sell for below GBP 400 million (U.S. $743.161 million). Invensys will continue to seek a buyer for its Powerware business as well as Lambda Electronics, a maker of switching and power supply equipment, bakery equipment maker APV Baker, and wind energy transmissions maker Hansen. (Reuters/Dow Jones)
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