Ingersoll Rand: huge write down, stock still up?

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This morning, Ingersoll Rand (NYSE: IR), the diversified industrial company makes procucts to air conditioner (Trane) to Schlage locks, reported its Q4 2008 earning this morning. Some highlights: it wrote down $3.7 billion (pre-tax, $3.4 b after tax) from Trane acqusition, or a loss of $10.56 per share. Interestingly, the stock went up about 15% in today’s trading. Why?

Some are saying the reason is the Q4 earning is above guidance (and street expectation).

Ingersoll Rand logo

On June 5 2008 Ingersoll closed the Trane deal, the shareholder of Trane received $36.50 cash per share plus 0.23 share of Ingersoll stock (closed at $43.83 on June 5 2008). Trane had about 200 m shares outstanding at the time. So the deal was

(36.50 + 43.83*0.23) * 200 m = $9,316 m or $9.32 billion

To put it in some perspective, as of today Feb 11, 2009 the market cap of IR is $5.59 billion. Obviously IR overpaid Trane by a big amount (more than $3.7 billion). On the other hand, all the Trane air conditioning business, plus IR traditional business (climate control, industrial, securities), are sold for $5.59 billion (much less than the Trane deal). The economy recession and the freeze of credit market are the direct cause of IR business slowdown. But when we think longer term, if we believe the world population will use more air conditioner and eat more frozen food, we should be bullish on IR.

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