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New CEO expected to continue ITW’s transformation

E. Scott Santi CEO Illinois Tool Works Inc. ITW is based Glenview.

E. Scott Santi, CEO of Illinois Tool Works Inc. ITW is based in Glenview.

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Updated: December 21, 2012 6:20AM



The reshaping under way at global diversified industrial equipment maker Illinois Tool Works Inc. is expected to continue under its new Chief Executive Officer E. Scott Santi, analysts said Monday.

“I think they’ll continue along the transformation Scott Santi has overseen over the last few months,” said Morningstar Inc. equity analyst Jim Krapfel. “There’s a lot of pressure for them to change how they run the business and focus more on growth and return more cash to shareholders. Santi kind of ran the show the last few months [and] has accelerated that effort, and I think they’ll continue as they go forward.”

Santi, 51, was elevated to the post Sunday after the death of the 100-year-old, Glenview-based company’s CEO David Speer on Saturday. Speer died of complications from cancer.

Under Speer’s leadership, the company acquired about 200 smaller companies, a rate of about one new company a week. The company consists of roughly 800 different businesses in industrial packaging, power systems and electronics, transportation and construction products, among other businesses.

Now ITW is in the midst of shedding slower growth, lower-margin businesses and revamping to focus more on faster growing, high-margin businesses.

Last month, the company closed on the sale of a 51 percent stake in its Decorative Surfaces segment, which included Wilsonart and related international businesses, for roughly $1.05 billion in cash.

Santi was named acting CEO last month when Illinois Tool Works announced Speer was taking a medical leave. The company disclosed a year ago that Speer was undergoing treatment for an undisclosed medical condition.

Santi has spent his entire career with the company. He was elected executive vice president in 2004 and vice chairman in 2008. Santi was not available for an interview.

“This is a pretty smooth transition,” said BMO Capital Markets industrials analyst Joel Tiss.

Tiss expects the company to continue its transition from previously using about two-thirds of its free cash flow for acquisitions and one-third for dividends to using one-third for share repurchases, one-third for dividends and one-third for more balanced acquisitions as it makes strategic divestitures.

“It’s something that the investors have been asking for a while,” Tiss said, adding he thinks Illinois Tool Works is “finally admitting quietly that the company got too big to really effectively grow through acquisitions, so what they’re trying to do is to balance.”

Krapfel also expects fewer acquisitions going forward, “but the ones that they will do will be larger in size, more growth oriented, more emerging market oriented,” he said.

“It’s a tough balancing act,” Tiss said of the company’s divestiture and acquisition strategy going forward.

“You don’t want to sell off all your winners because then what’s left is a slower growth, lower return company, and if you sell off all your losers, you have to be careful not to take the proceeds from selling off those slower growth assets and pay too much to buy higher growth assets.”

Illinois Tool Works reported third-quarter net income of $524 million, up 3.4 percent from a year earlier. But revenue fell 1.7 percent to $4.5 billion, the company said last month.

The stock closed up 1.2 percent, or 68 cents, Monday at $59.55.



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