In August, Pentair plc (PNR) decided to sell a valves and controls business it had acquired a few years earlier to Emerson Electric Co. (EMR) for $3.2 billion.
Behind the scenes, as that deal was carried out, activist investor Ed Garden, CIO of Trian Fund Management, a Pentair director since 2015, began collaborating with Pentair CEO Randall Hogan to identify the next step to drive shareholder value. For Garden, the sale to Emerson acted as a catalyst to drive the company into splitting its remaining water and electrical business into two separate companies.
"The decision to monetize valves and controls was the catalyst to allow us to look at the business and say, 'we have two businesses, water and electrical, that have critical mass, that could be standalone businesses on their own,'" Garden said at "Corporate Governance: Navigating New Challenges to Value Creation," a June 5 event sponsored by The Deal and BoardEx, business units of The Street.
Garden and Hogan spoke to The Street founder Jim Cramer at the conference about how they came to agree that—once that unit was sold off—it was time to split its remaining largest businesses into two separate companies. Trian, an activist fund that prefers to be known as a "liquid private equity" or a "highly engaged shareowner," became a Pentair investor, reporting a 7.2% stake, in 2015.
Around that time, Hogan explained, he had become so focused on the valves and controls business, partly because it has been struggling due to a commodity prices downturn, that he didn't have time to focus on water and electrical.
"That was a tough time," Hogan said. "That sale let us pivot to splitting the company... Ed [Garden] was early in thinking on that idea and helped me bring the whole board there. The whole board is on board with doing it."
The Pentair breakup, which was announced in May, will create a water business that includes filtration and environmental systems with $2.8 billion in sales and an electrical company with $2.1 billion in revenue. Hogan plans to retire as CEO and chairman of Pentair when the split-up is completed and will take the role of chair at the electrical firm.