In my quest for a buy-it-and-forget-it stock, I looked at Ingersoll-Rand (IR: chart, web, Y!) a while back as a diversified industrial conglomerate addition to my portfolio.

In that previous post, MJ over at Dyslexic Research went back and forth on the benefits of the Trane/Ingersoll transaction.  If you remember, MJ thought Trane would bring significant value to IR, and if the housing and commercial property sector would have been as robust after the deal as before, I think he would probably have been rht.

As it turns out though, IR is now taking a $3.7 billion write down of the acquisition of Trane.

IR reported better than expected numbers from continuing operations, and revealed an outlook for 2009 that isn’t too far out of sync with the Street’s expectations.  That outlook alone lifted share prices more than 12% despite the write-down.

For the fourth quarter of 2008, IR posted a net loss of $3.3 billion compared to a profit of $2.5 billion for the same quarter of 2007.  It is evident now that Ingersoll overpaid for the Trane acquisition, as evidenced by the huge write-down, and since the economy has been flipped on its head since the acquisition, it doesn’t look good for heating and air sales for 2009.

It appears that the decision to buy Trane has taken its toll at the top for IR, as Chairman and Chief Executive Herbert Henkel unexpectedly announced his retirement with a target time frame of “next year”.

Corner Office Comments

In the long run I think Ingersoll Rand will survive, as their diversification in the industrial sector is probably going to insulate them sufficiently from a collapse.  However, the Trane deal was a bad one (hindsight being what it is), and I don’t look for that part of the company to make money any time soon.  How well the rest of the company can subsidize the HVAC sector will be seen in the coming quarters.

In reality, our discussion on the IR/TT merger wasn’t forward looking enough, if there can be such a thing, and neither of us really considered where the economy was going (at that time, June of last year, I don’t think anyone really knew).

Anyway, neither of us pulled the trigger on IR; they’ve dropped nearly 37% since then.

Investing acquisitions, Herbert Henkel, Ingersoll-Rand, IR, Trane

Several days ago I asked my buddy MJ over at Dyslexic Research what he thought of Ingersoll-Rand (IR: chart, web, Y!).  I’m not really an industrials guy, as my area of knowledge rests more in energy (specifically oil and gas) and tech.  That said, I’ve been making efforts to broaden my knowledge and diversify my portfolio.

MJ, however, is very much in tune with industrial sector, and I figured he’d have a good opinion on the company.

So it was with great interest that I read his opinion post on the company.

As MJ mentions, Ingersoll-Rand is in early stages of acquiring Trane (TT: chart, web, Y!).  You know, the air conditioner people.  But it turns out that Trane is much larger than I thought, and offer product lines outside of the home HVAC units.

MJ believes that Trane is a stronger company than Ingersoll, and as such, Ingersoll benefits more from the acquisition than Trane does (which is good if you’re looking at Ingersoll stock).  However, he also suggests that this would be a great opportunity for Ingersoll to screw up a fairly healthy company.  And I agree.

I’m not sure I agree with Ingersoll’s sell off of Bobcat, as that seemed to be a very robust product and a fairly bullet-proof brand.  Trane could bring some street-cred back to IR, but it will take some time according to MJ:

After seeing mergers from the inside out, it will take roughly six months to a year for the two companies to properly integrate into one another and see potential synergy savings. After that both companies might be able to flourish. -Source

In my opinion, a lot will depend on how they structure the acquisition.  If Trane operates as a subsidiary, I think the integration process will be fairly smooth, as it will be a matter of book keeping.  However, if it is a merger in the truest sense of the word, I’d look at 18 months before you see signs of a single, well oiled machine.

I’ll let you read about MJ’s outlook on Ingersoll and his official opinion on the stock at his blog, and he’s brought up some very valid concerns.

For now, I’ll keep digging but will keep Ingersoll-Rand on my watch list.

Investing, Stock Research, Stock Thoughts Ingersoll-Rand, IR, Stock Thoughts, Trane, TT