American Standard To Split Up: Good News For Investors

Feb. 2.07 | About: American Standard (ASD)

Eddy Elfenbein submits: One of the companies I like to follow is American Standard (ASD). Most people assume that this is a toilet stock. By that, I don’t mean the shares are in the toilet, but that the company literally makes toilets. Actually, both assumptions are incorrect. The company’s main business is Trane air conditioning, and the stock has done very well.

The company has a rather interesting history. American Standard first went public in 1929, which was a good time to be selling shares. In 1968, the company bought WEBCO, which was the Westinghouse Air Brake Company. George Westinghouse’s air brake revolutionized rail travel. When Westinghouse died in 1914, the New York Times wrote that his invention saved more lives than all wars combined.

By 1988, American Standard was threatened with a hostile takeover, so the management decided to take the company private through an LBO. In 1995, American Standard returned to the markets when it IPO’d at $20 a share. The stock reached an all-time high yesterday of $49.47, and that includes a 3-for-1 split. So ASD’s shares are up about 650% in 12 years:

asd chart

Now for the good news. Yesterday the company announced fourth-quarter earnings of 51 cents a share, and it guided higher for 2007. Now for the really good news—the company will split itself up into three parts. Please take note. Whenever a successful company splits itself up, you can often find outstanding buys. Check out Moody’s stock since it was spun off from Dun & Bradstreet:

mco chart

Or Corporate Executive Board since it was spun off from the Advisory Board Company:

ebdx chart

American Standard will sell off its struggling kitchen and bath unit (the toilets), which accounts for about 21% of sales. The WEBCO unit (about 18% of sales), which is now vehicle control, will be spun off to shareholder. ASD shareholders will get one share of WEBCO for every three shares of ASD they own. Lastly, the core air-conditioning business (61% of sales) will change its name to Trane.