With the housing market in the doldrums, any business with heavy exposure to homebuilders would seem a tough sell at this time. But a sale of Ingersoll-Rand`s construction equipment maker Bobcat could net the company a handsome sum.
Robert F. McCarthy, an analyst, said Wednesday that proceeds from a Bobcat sale could be "surprisingly rich." He estimated Ingersoll-Rand`s sale of Bobcat and other construction-related businesses could net the company $3.2 billion to $3.6 billion after taxes. Ingersoll-Rand said Tuesday that it was exploring strategic alternatives for the businesses.
McCarthy said Bobcat could appeal to Ingersoll competitors like Komatsu, Kubota, Terex and Volvo. Volvo has already made a major acquisition from Ingersoll. In February, the truckmaker agreed to buy Ingersoll`s road construction equipment division for $1.3 billion in cash. The Swedish company might be encouraged to mull another purchase of a weak dollar. In the last six months, the dollar is down 5.2% to the Euro.
McCarthy said Bobcat could also appeal to private equity. To find value, private-equity firms have proven willing to invest in industries under the direst circumstances. Earlier this week the New York-based private-equity firm picked up the long-struggling Chrysler but at a huge discount from the price Daimler originally paid for it.
Bobcat makes compact construction equipment that is often used for homebuilding, which has pulled back dramatically in the United States recently. Homebuilders are building less because of a weakening housing market that has left them with supply gluts. The pullback helped pushed Bobcat`s first-quarter revenues down 12% from a year ago.
In addition to a sale, Ingersoll-Rand said it would examine a spin-off of Bobcat. However, one currently appears more likely. "We believe a sale is the most likely outcome, since we believe that a private market valuation will significantly exceed reasonable expectations for a public market valuation" wrote McCarthy in a client note.
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