Pentair and Tyco International’s Flow Control Business to Combine in $10 Billion All-Stock Merger

The transaction values Tyco Flow at approximately $4.9 billion, including assumed net debt and minority interest. Upon completion of the transaction, which has been unanimously approved by the boards of both companies, Tyco shareholders will own approximately 52.5% of the combined company and Pentair shareholders will own approximately 47.5%.

The combination will bring together complementary leaders in water and fluid solutions, valves and controls, and equipment protection products to create a premier industrial growth company. The merged company, with estimated pro forma 2012 revenues of $7.7 billion, is expected to create enhanced shareholder value through:

• Increased global scale with greater access to developed and fast growth regions;
• Broader presence in key sectors with greater opportunity to capitalize on growth trends in the energy, infrastructure and industrial sectors;
• More robust portfolio of complementary products and customer solutions;
• Significant operational and tax synergies; and
• Strong balance sheet and cash flow generation to support growth and return of capital to shareholders.

The new company will be named Pentair and will be led by Randall J. Hogan, Pentair’s current Chairman and Chief Executive Officer.

Mr. Hogan said, "This is a highly compelling, transformational transaction, bringing together two great companies to create substantial value for shareholders and enhanced growth prospects. The addition of Tyco Flow perfectly aligns with Pentair’s growth strategy to expand globally, invest in high growth platforms and leverage the Pentair Integrated Management System to generate strong shareholder returns. We believe that by combining with Tyco Flow, we can unlock substantial synergies, meaningfully increase our global presence and better serve our customers with a broader offering and expanded capabilities. The new Pentair will be well positioned to benefit from the increased demands on energy, water, infrastructure and industrial process resulting from the growing population and wealth of developing economies."

"We look forward to welcoming the Tyco Flow employees to Pentair," added Mr. Hogan. "We believe our shared vision and commitment to operational excellence will provide even greater value and facilitate a smooth integration. We are creating an even stronger company with the scale to capitalize on further growth opportunities and the ability to better serve our global customers, drive profitability and enhance shareholder returns."

"This transaction provides compelling value for Tyco shareholders through ownership in a combined company with earnings and cash flow prospects that are greater than an independent, publicly traded Tyco Flow," said Ed Breen, Chairman and Chief Executive Officer of Tyco International. "When we announced plans for the three-way split of Tyco last September, we emphasized the value-creation opportunities for our shareholders. By combining Tyco Flow with Pentair to create a leading global flow and filtration company, we will have the opportunity to accelerate that value creation. This combination is a win-win for the shareholders of both companies."

Value Creation for Both Companies Shareholders

The combination will be tax-free to both companies shareholders and is expected to result in immediate earnings accretion, adding approximately $0.40 per share to Pentair’s adjusted earnings in 2013. The new company expects to achieve earnings per share of greater than $5.00 by 2015 reflecting an expected $200 million of annual pre-tax cost synergies through the elimination of duplicate public company costs, greater economies of scale and further streamlined operations, in addition to greater tax efficiencies of approximately $50 million annually. The combined company expects to incur approximately $230 million in one-time costs related to the transaction over the next 12 to 24 months, including transaction related costs, non-cash inventory step-up charges and costs to achieve the synergies. The new company will have an enhanced capital structure and the ability to generate strong cash flow.

Tyco shareholders will own 52.5% of a company whose global scale, growth prospects, financial strength and more predictable earnings growth profile are more compelling than Tyco Flow as a standalone company. Tyco shareholders will also participate in the substantial value-creation opportunities through the revenue, operating and tax synergies that would not be available to Tyco Flow on its own. As a highly complementary strategic partner, Pentair has the successful execution track record to deliver that value proposition. Moreover, as a result of completing the transaction through this structure, the benefits of the tax-free spin-off are preserved for Tyco shareholders.

Transaction Details

Tyco is proceeding with the separation plan announced on September 19, 2011 and continues to expect to complete the transactions at the end of September 2012, including the combination of Tyco Flow and Pentair announced on March 28, 2012. The transaction is subject to the approval of the planned spin-off by Tyco shareholders, the approval of the merger by Pentair shareholders, regulatory approvals and customary closing conditions.

The transaction combining Tyco Flow and Pentair is structured as a Reverse Morris Trust in which Tyco will complete the spin-off of Tyco Flow to Tyco shareholders, immediately followed by the merger of Pentair into a subsidiary of Tyco Flow. Upon closing, Tyco shareholders will own approximately 52.5% and Pentair shareholders will own approximately 47.5% of the combined company on a diluted basis, with approximately 214 million diluted shares expected to be outstanding. As part of the transaction, the new Pentair will assume approximately $275 million of Tyco Flow debt, net of cash. At Pentair’s closing price of $40.26 yesterday, the transaction values Tyco Flow at $4.9 billion, including the net debt and $94 million of minority interest. The transaction is expected to be tax-free to both companies as well as to Pentair and Tyco shareholders.

Governance and Management

Upon close of the transaction, Pentair’s Board of Directors, together with two new directors designated by Tyco, will be the Board of Directors of the combined company. In addition to Mr. Hogan, who will serve as Chairman and Chief Executive Officer of the combined company, the Pentair executive team will remain in place as the senior executive team of the combined company.

The combined company will be incorporated in Switzerland, where Tyco is currently incorporated, with main U.S. offices remaining in Minneapolis, Minnesota where Pentair is based. Following completion of the transaction, the new Pentair is expected to have approximately 30,000 employees worldwide with approximately 15,000 coming from Pentair and 15,000 joining from Tyco Flow.

Deutsche Bank Securities Inc. is acting as financial advisor to Pentair and Cravath, Swaine & Moore LLP and Foley & Lardner LLP are providing legal counsel. Goldman, Sachs & Co. is serving as financial advisor to Tyco and Simpson Thacher & Bartlett LLP and McDermott Will & Emery are providing legal counsel. Greenhill & Co. LLC provided an additional fairness opinion to Pentair’s Board of Directors and Goldman, Sachs & Co. provided a fairness opinion to Tyco’s Board of Directors. Lazard is serving as financial advisor to Tyco’s Board of Directors.