ITT Spins Off Water, Defense Segments

Joel Anderson  |

ITT Corp. (ITT) completed its spin-off of both its defense and water technology segments today as ITT Exelis (XLS) and Xylem (XYL) started trading publicly as separate entities. In addition, the new-look ITT will focus more on engineering business as well as on the remaining segments like energy, aerospace, transportation, and industrial applications. Investors appeared to believe that the move would be beneficial to all three companies, pushing up stock prices on each in the first day of trading for Exelis and Xylem.

ITT combined the spin-off with the decision to do a 2:1 reverse stock split on ITT shares while also announcing that they've completed the acquisition of Blaker's Pump Engineers, the Australian company that has long been responsible for the distribution of ITT's Gould Pumps brand. ITT, an industrial goods conglomerate, initiated the spin-off earlier this year in hopes of improving the value of its stagnating stock for shareholders, but the $500 million cost of the maneuver, which outpaced expectations, may limit the ultimate benefit. Preliminary trading Tuesday yielded a combined value for the stocks of approximately $55, well short of the $60 analysts expected. Stocks in all three new companies gained on the day, though. Exelis posted a 3.5 percent jump, Xylem traded up 2 percent, and shares of the remaining ITT legacy company increased over 7 percent in value.

Xylem wasted no time in its first official day of existence as a publicly traded company, announcing some major deals right out of the gate. Xylem will be a global water technology company, supplying technology and products to aid in supplying water utilities around the globe. "I'm extremely proud to announce the launch of a unique company, the product of more than 100 years of experience in the water business and the collective work and expertise of our nearly 12,000 employees and our strategic partners around the world," said Gretchen McClain, president and CEO of Xylem. "While our name has changed with the spin-off, our customers will find in Xylem the same commitment to providing local service to meet their specific needs while leveraging our global network, technological strength and applications expertise."

Right out of the gate, Xylem announced a deal with General Electric (GE) to form a partnership that will allow GE entrance into the public utilities market for its advanced membrane filtration products. GE's ZeeWeed membranes should allow Xylem to expand their available product portfolio in the more than 150 countries where it operates. This was paired with the announcement of the release of their new Flygt Experior wastewater pumping system that is 50 percent energy savings over conventional options through more efficient use of motors and hydraulics.

The other leg of the ITT spin-off, Exelis, was formed from the ITT defense segment. The new $5.9 billion, 21,000-employee company will be focused on offering a diverse range of defense products to governments. "As our industry's newest global technology leader, ITT Exelis will continue to provide customers with the world-class technologies and services they have come to expect from us," said Exelis CEO and President David Melcher. "Our new corporate autonomy and streamlined structure make us even more nimble in anticipating, reacting and responding to customers' evolving needs with affordable, ready-now solutions. Our diversified portfolio, talented global workforce operating on five continents, long-standing commitment to innovation, and customer-centered culture ensure Exelis will provide immediate value to our customers, employees and shareholders."

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