Gardner Denver CEO resigns

Posted: July 18, 2012

Shares of Chesterbrook-based Gardner Denver Inc. fell 9 percent, to $48.22, the lowest since 2010, after the resignation Monday of Barry Pennypacker, the chief executive who moved the industrial-equipment maker to suburban Philadelphia from Quincy, Ill., in December 2010 to be closer to investors and customers.

Pennypacker left as activist investor ValueAct Capital, a San Francisco- and Boston-based firm that promises to "unlock shareholder value" in target companies by working with bosses to cut costs and boost profits, has been accumulating shares of the air-compressor and industrial-blower maker, notes Damien J. Park, a Philadelphia-based consultant to companies coping with activist investors.

The boss left three days before Gardner Denver was scheduled to report quarterly profits. The company said it was making no change to its earnings projections.

ValueAct now owns just under 5 percent of Gardner Denver, trailing only T. Rowe Price and Vanguard mutual funds among Gardner Denver shareholders, according to Securities and Exchange Commission money-manager reports through June 30.

"It's not uncommon for a board of directors to make significant management changes soon after an activist investor like ValueAct Capital has disclosed a large ownership stake," Park told me. ValueAct says it manages $7 billion in assets; past targets include Sara Lee Corp. and Thomson Reuters, among others. Gardner Denver spokesman Mike Dunn declined to comment beyond the company statement.

Michael M. Larsen, Gardner Denver's chief financial officer and a former General Electric executive, was named to replace Pennypacker in the top job. Larsen and Pennypacker were unavailable for comment. ValueAct didn't return calls.

Slipped

Less than a week before Pennsylvania's planned $363.5 million general-obligation bond sale, Moody's Investor Service has cut Pennsylvania's bond rating to Aa2 from Aa1, citing the Commonwealth's "large and growing pension liabilities and moderate economic growth," and its "high debt," all of which "will challenge the return to structural balance, contributing to a protracted financial recovery."

Lower bond rates often translate to higher borrowing costs because borrowers have to pay investors more to buy their riskier debt. But given today's low interest rates and the big demand by nervous investors for tax-free municipal bonds — despite increasing state and local funding crises — Pennsylvania's debt might not feel the pinch anytime soon.

Pennsylvania's financial challenges "have been pretty well known," bond-watcher Steve McLaughlin, senior vice president at R. Seelaus & Co. in Summit, N.J., told me. Moody's had previously warned it was weighing a downgrade of Pennsylvania debt; the cut removes the uncertainty. "This could cost them a few basis points, but the demand for highly rated state-issued debt is pretty strong right now."

An increase of 5 basis points (5 percent of 1 percent) would increase borrowing costs on the state's new bond issue by $180,000 a year. Tom Kozlik, municipal bond analyst at Janney Montgomery Scott in Philadelphia, said most of the increase has "already been priced in" to Pennsylvania bond yields, which have already risen by 4 basis points so far this year, citing Thomson Reuters data. "Pennsylvania remains a very strong credit," Kozlik added, "but will have to spend more" to finance pensions.

Tom Ridge, Ed Rendell and other past Pennsylvania governors, backed by legislators of both parties, approved high pensions for state legislators, judges, Penn State employees, prison guards, and schoolteachers and other school workers, but refused to fund them in line with the state's own guidelines, while the expensive private money management firms hired to invest in hedge funds, real estate, buyout funds and other investments have generated disappointing profits to fill the gap.

Contact columnist Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, or @PhillyJoeD on Twitter.

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