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American Standard to break up company

February 02, 2007|From the Associated Press

NEWARK, N.J. — American Standard Cos. said Thursday that it would sell its well-known plumbing fixture business and spin off a unit that makes auto braking systems, then rename the company Trane after its signature brand of air conditioning systems.

Wall Street applauded the breakup plan, sending the stock rising more than 7% to its highest level since the company went public in 1995.

Although Piscataway, N.J.-based American Standard is best known for its kitchen and bath products, the Trane operation in 2006 brought in $6.8 billion, or 60% of its sales.

Trane is among the leading suppliers of commercial and residential heating, ventilation and air conditioning systems. The new Trane company will retain the right to use the American Standard brand name for such products.

The vehicle control systems business, which posted $2 billion in revenue in 2006, will be spun into a publicly traded company to be called Wabco. American Standard shareholders will be issued one share of Wabco stock for every three American Standard shares.

American Standard also said it would sell its bath and kitchen business, which generated $2.4 billion in revenue in 2006. The company, which has about 62,000 employees worldwide, plans to use proceeds from that sale to pay down debt and buy back Trane common stock.

The breakup is to be completed by fall.

SunTrust Robinson Humphrey analyst Keith Humphrey said it was not surprising that Wall Street liked the deal.

"It's attractive because the kitchen and bath business, which has been the problem over the last year or so, is no longer going to be part of the entity," Humphrey said. As with others in the industry, the business' "results have fallen off a cliff" because the price of raw materials has risen.

Because of the American Standard name, however, "I think the private equity firms will line up to buy it," Humphrey said.

The separation of Trane from Wabco also made sense, he said, noting that the two businesses had nothing in common.

The restructuring was announced along with quarterly and annual financial results. The company said its fourth-quarter profit rose 78%, helped by strong sales of air conditioning and vehicle control systems.

Earnings rose to $114.3 million, or 56 cents a share, from $64.4 million, or 30 cents, during the same period last year.

Revenue grew 6% to $2.70 billion from $2.55 billion in the year-ago quarter but came in just under Wall Street's estimate of $2.74 billion.

American Standard shares rose $3.86, or 7.8%, to $53.25.

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