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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities and Exchange Act of 1934
(Amendment No. 1)
Gardner Denver, Inc.
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(Name of Issuer)
Common Stock, $0.01 par value
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(Title of Class of Securities)
365558105
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(CUSIP Number)
Allison Bennington, Esq.
ValueAct Capital
435 Pacific Avenue, Fourth Floor
San Francisco, CA 94133
(415) 362-3700
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(Name, address and telephone number of Person
Authorized to Receive Notices and Communications)
Allison Bennington, Esq.
ValueAct Capital
435 Pacific Avenue, Fourth Floor
San Francisco, CA 94133
(415) 362-3700
July 26, 2012
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 240.13d-7 for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
This information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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SCHEDULE 13D
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CUSIP NO. 365558105 Page 2 of 16
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
ValueAct Capital Master Fund, L.P.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3. SEC USE ONLY
-----------------------------------------------------------------------------
4. SOURCE OF FUNDS (See Instructions)*
WC*
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
British Virgin Islands
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7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 2,507,750**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
2,507,750**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,507,750**
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
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13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.1%
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14. TYPE OF REPORTING PERSON
PN
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*See Item 3
**See Item 2 and 5
SCHEDULE 13D
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CUSIP NO. 365558105 Page 3 of 16
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
VA Partners I, LLC
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS*
00*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 2,507,750**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
2,507,750**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,507,750**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.1%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
00 (LLC)
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*See Item 3
**See Item 2 and 5
SCHEDULE 13D
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CUSIP NO. 365558105 Page 4 of 16
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
ValueAct Capital Management, L.P.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3. SEC USE ONLY
-----------------------------------------------------------------------------
4. SOURCE OF FUNDS*
00*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 2,507,750**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
2,507,750**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,507,750**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.1%
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14. TYPE OF REPORTING PERSON
PN
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*See Item 3
**See Item 2 and 5
SCHEDULE 13D
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CUSIP NO. 365558105 Page 5 of 16
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
ValueAct Capital Management, LLC
-----------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS*
00*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 2,507,750**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
2,507,750**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,507,750**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.1%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
00 (LLC)
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*See Item 3
**See Item 2 and 5
SCHEDULE 13D
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CUSIP NO. 365558105 Page 6 of 16
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
ValueAct Holdings, L.P.
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3. SEC USE ONLY
---------------------------------------------------------------------------
4. SOURCE OF FUNDS*
00*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 2,507,750**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
2,507,750**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,507,750**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.1%
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14. TYPE OF REPORTING PERSON
PN
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*See Item 3
**See Items 2 and 5
SCHEDULE 13D
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CUSIP NO. 365558105 Page 7 of 16
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1. NAME OF REPORTING PERSON/S.S. OR I.R.S. INDENTIFICATION NO. OF ABOVE
PERSON (entities only)
ValueAct Holdings GP, LLC
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS*
00*
-----------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
-----------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
-----------------------------------------------------------------------------
7. SOLE VOTING POWER
0
NUMBER OF ----------------------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 2,507,750**
OWNED BY EACH ----------------------------------------------------------
PERSON WITH 9. SOLE DISPOSITIVE POWER
0
----------------------------------------------------------
10. SHARED DISPOSITIVE POWER
2,507,750**
-----------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,507,750**
-----------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
-----------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.1%
-----------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON
00 (LLC)
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*See Item 3
**See Items 2 and 5
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CUSIP NO. 365558105 Page 8 of 16
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THE PURPOSE OF THIS AMENDMENT NO. 1 TO SCHEDULE 13D IS TO AMEND THE
OWNERSHIP REPORTS OF THE REPORTING PERSONS, ITEM 4(PURPOSE OF TRANSACTION)
AND ITEM 7 (MATERIAL TO BE FILED AS EXHIBITS). THE INFORMATION BELOW
SUPPLEMENTS THE INFORMATION PREVIOUSLY PROVIDED.
Item 1. Security and Issuer
This Schedule 13D relates to the Common Stock, $0.01 par value per
share (the "Common Stock") of Gardner Denver, Inc., a Delaware corporation
(the "Issuer"). The address of the principal executive offices of the Issuer
is 1500 Liberty Ridge Drive, Suite 3000, Wayne, Pennsylvania 19087.
Item 2. Identity and Background
This statement is filed jointly by (a) ValueAct Capital Master Fund,
L.P. ("ValueAct Master Fund"), (b) VA Partners I, LLC ("VA Partners I"), (c)
ValueAct Capital Management, L.P. ("ValueAct Management L.P."), (d) ValueAct
Capital Management, LLC ("ValueAct Management LLC"), (e) ValueAct Holdings,
L.P. ("ValueAct Holdings") and (f) ValueAct Holdings GP, LLC ("ValueAct
Holdings GP")(collectively, the "Reporting Persons").
ValueAct Master Fund is a limited partnership organized under the laws
of the British Virgin Islands. It has a principal business address of 435
Pacific Avenue, Fourth Floor, San Francisco, CA 94133.
VA Partners I is a Delaware limited liability company, the principal
business of which is to serve as the General Partner to ValueAct Master Fund.
It has a principal business address of 435 Pacific Avenue, Fourth Floor, San
Francisco, CA 94133.
ValueAct Management L.P. is a Delaware limited partnership which
renders management services to ValueAct Master Fund. ValueAct Management LLC
is a Delaware limited liability company, the principal business of which is
to serve as the General Partner to ValueAct Management L.P. Each has a
principal business address of 435 Pacific Avenue, Fourth Floor, San
Francisco, CA 94133.
ValueAct Holdings is a Delaware limited partnership and is the sole
owner of the limited partnership interests of ValueAct Management L.P. and
the membership interests of ValueAct Management LLC and is the majority owner
of the membership interests of VA Partners I. ValueAct Holdings GP is a
Delaware limited liability company, the principal business of which is to
serve as the General Partner to ValueAct Holdings. Each has a principal
business address of 435 Pacific Avenue, Fourth Floor, San Francisco, CA
94133.
(d) and (e). None of the entities or persons identified in this Item 2
has during the past five years been convicted of any criminal proceeding
(excluding traffic violations or similar misdemeanors), nor been a party to a
civil proceeding of a judicial or administrative body of competent judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
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CUSIP NO. 365558105 Page 9 of 16
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Item 3. Source and Amount of Funds or Other Consideration
The source of funds used for the purchase of the Issuer's securities
was the working capital of ValueAct Master Fund. The aggregate funds used by
these Reporting Persons to make the purchases were $953,876.92.
Item 4. Purpose of Transaction
On July 26, 2012 the Reporting Persons sent a letter to the Board of
Directors of the Issuer (the "Letter"). The full text of the Letter is
attached hereto as Exhibit 2.
Item 5. Interest in Securities of the Issuer
(a) and (b). Set forth below is the beneficial ownership of shares of
Common Stock of the Issuer for each person named in Item 2. Shares reported
as beneficially owned by ValueAct Master Fund are also reported as
beneficially owned by (i) ValueAct Management L.P. as the manager of each
such investment partnership, (ii) ValueAct Management LLC, as General Partner
of ValueAct Management L.P., (iii) ValueAct Holdings, as the sole owner of
the limited partnership interests of ValueAct Management L.P. and the
membership interests of ValueAct Management LLC and as the majority owner of
the membership interests of VA Partners I and (iv) ValueAct Holdings GP, as
General Partner of ValueAct Holdings. Shares reported as beneficially owned
by ValueAct Master Fund are also reported as beneficially owned by VA
Partners I, as General Partner of ValueAct Master Fund. VA Partners I,
ValueAct Management L.P., ValueAct Management LLC, ValueAct Holdings and
ValueAct Holdings GP also, directly or indirectly, may own interests in one
or more than one of the partnerships from time to time. Unless otherwise
indicated below, by reason of such relationship ValueAct Master Fund is
reported as having shared power to vote or to direct the vote, and shared
power to dispose or direct the disposition of, such shares of Common Stock,
with VA Partners I (only with respect to ValueAct Master Fund), ValueAct
Management L.P., ValueAct Management LLC, ValueAct Holdings and ValueAct
Holdings GP.
As of the date hereof, ValueAct Master Fund is the beneficial owner
of 2,507,750 shares of Common Stock, representing approximately 5.1% of the
Issuer's outstanding Common Stock (which shares may also be deemed to be
beneficially owned by VA Partners I).
ValueAct Management L.P., ValueAct Management LLC, ValueAct Holdings
and ValueAct Holdings GP may each be deemed the beneficial owner of an
aggregate of 2,507,750 shares of Common Stock, representing approximately
5.1% of the Issuer's outstanding Common Stock.
All percentages set forth in this Schedule 13D are based upon the
Issuer's reported 48,971,000 outstanding shares of Common Stock as
reported in the Issuer's press release dated July 19, 2012.
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CUSIP NO. 365558105 Page 10 of 16
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(c) Since the date of the last filing, the Reporting Persons purchased
the following shares of Common Stock in the open market:
Reporting Person Trade Date Shares Price/Share
---------------- ---------- --------- -----------
ValueAct Master Fund 07/12/2012 19,100 $49.91
(d) and (e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
Other than as described elsewhere in this Report and as previously
reported, the Reporting Persons have no understandings, arrangements,
relationships or contracts relating to the Issuer's Common Stock which are
required to be described hereunder
Item 7. Material to Be Filed as Exhibit
(1) Joint Filing Agreement.
(2) Letter dated July 26, 2012 from the Reporting Persons to the
Board of Directors of the Issuer.
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CUSIP NO. 365558105 Page 11 of 16
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SIGNATURE
After reasonable inquiry and to the best of his knowledge and
belief, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below on this Schedule 13D hereby constitutes and appoints Jeffrey W. Ubben,
George F. Hamel, Jr., G. Mason Morfit and Allison Bennington, and each of
them, with full power to act without the other, his or its true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or it and in his or its name, place and stead, in any
and all capacities (until revoked in writing) to sign any and all amendments
to this Schedule 13D, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or it might
or could do in person, thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
ValueAct Capital Master Fund L.P., by
VA Partners I, LLC, its General Partner
By: /s/ George F. Hamel, Jr.
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Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
VA Partners I, LLC
By: /s/ George F. Hamel, Jr.
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Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
ValueAct Capital Management, L.P., by
ValueAct Capital Management, LLC its
General Partner
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
ValueAct Capital Management, LLC
By: /s/ George F. Hamel, Jr.
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Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
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CUSIP NO. 365558105 Page 12 of 16
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ValueAct Holdings, L.P., by
ValueAct Holdings GP, LLC, its
General Partner
By: /s/ George F. Hamel, Jr.
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Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
ValueAct Holdings GP, LLC
By: /s/ George F. Hamel, Jr.
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Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
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CUSIP NO. 365558105 Page 13 of 16
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Exhibit 1
JOINT FILING UNDERTAKING
The undersigned parties hereby agree that the Schedule 13D filed herewith
(and any amendments thereto) relating to the Common Stock of Gardner Denver,
Inc., is being filed jointly on behalf of each of them with the Securities
and Exchange Commission pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended.
ValueAct Capital Master Fund L.P., by
VA Partners I, LLC, its General Partner
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
VA Partners I, LLC
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
ValueAct Capital Management, L.P., by
ValueAct Capital Management, LLC its
General Partner
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
ValueAct Capital Management, LLC
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
ValueAct Holdings, L.P., by
ValueAct Holdings GP, LLC, its
General Partner
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
ValueAct Holdings GP, LLC
By: /s/ George F. Hamel, Jr.
--------------------------------------
Dated: July 27, 2012 George F. Hamel, Jr., Chief Operating Officer
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CUSIP NO. 365558105 Page 14 of 16
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Exhibit 2
July 26, 2012
VIA EMAIL AND OVERNIGHT MAIL
Diane K. Schumacher
Chairperson of the Board of Directors
Gardner Denver Inc.
1500 Liberty Ridge Drive
Suite 3000
Wayne, PA 19087
Dear Diane,
ValueAct Capital owns 2.5 million shares, representing 5.1% of Gardner
Denver Inc.s ("GDI" or "the Company") common shares outstanding. As a large
shareholder, we are writing to recommend that the board of GDI pursue a sale
of the Company in light of the circumstances in which it finds itself after
the surprising resignation of its CEO, Barry Pennypacker, on Monday July 16,
2012. We believe a sale of the Company at this time would be both prudent and
the most effective way to deliver maximum value to shareholders on a risk-
adjusted basis for both the short and long-term. Accordingly, we strongly
urge the GDI board of directors to engage investment bankers immediately for
the purpose of soliciting offers for the Company.
ValueAct Capital manages over $7.5 billion on behalf of some of the
world's most respected institutional and individual investors. We have an
enviable track record that extends over 12 years and has involved board
representation at 28 companies, roughly half of our core investments. Recent
successful investments in which ValueAct Capital played an active governance
role include the multi-year transformation of Sara Lee Corporation into 2 new
more focused and highly-valued companies, the portfolio upgrading,
operational turnaround and subsequent premium sale of Misys plc and the
highly successful acquisitive growth strategy of Valeant Pharmaceuticals.
Before today, ValueAct Capital has never publicly called for the sale
of a company. Thus, some explanation is in order. We are firm believers in
the value of shareholder representation in the board room and the importance
of having a board of directors with significant capital at risk when facing
challenging strategic decisions. Ideally, a large, experienced governance
investor like ourselves would have a seat at the table and would work
collaboratively inside the board room with fellow directors, management and
the Company's advisors in determining appropriate strategic direction during
a time like this. In this instance, we had not sought board representation
given the relatively short tenure of our investment. As a result, we believe
it is most efficient to communicate our recommended plan of action in writing
to the entire Board of Directors at this time, as we understand the Board is
convening a meeting early next week to consider several key strategic
decisions.
We commend Michael Larsen on his handling of the difficult situation
thus far. As we would have expected given our prior interactions with him, he
has exhibited solid management and communication skills and provided comfort
to investors in several of the most critical areas--the integrity of the
-------------------------- -------------------------
CUSIP NO. 365558105 Page 15 of 16
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financial results, the continuity of the operational initiatives and the
capital deployment priorities. We also appreciate the recommitment
communicated publicly to the principles of the strategic plan that Barry
Pennypacker and his team had developed for GDI and we look forward to
learning the details of the next major restructuring initiative--addressing
the underperforming profitability of GDI's European operations.
However, continuity of the operational culture and commitment to the
restructuring plans do not change the unfortunate fact that the execution
risk of the Company's strategic plan has now escalated significantly with
Barry's resignation. In our view, Barry's experience, skill set and
management approach were uniquely well-matched to the strategic opportunities
and priorities of GDI. The timing of Barry's departure is especially
inopportune in light of the impending launch of the European restructuring,
one of the most challenging geographies in which to execute such an
initiative, as well as the continuing cyclical weakness of GDI's upstream
energy business.
While we appreciate the interim leadership role Michael Larsen can
play and are thankful to have an executive of his caliber on the team,
Barry's departure, plus the recent turnover and associated turmoil in the
executive ranks leave the broader team depleted and dangerously short-handed
at a critical juncture. It is worth noting that the team has been
significantly rebuilt over the past several years with many executives who
had direct experience and apparent affinity working with Barry, and thus,
inevitably, may now be at risk for further turnover.
Of course, consideration of a sale of the Company as an alternative to
retaining public company status under a new CEO must incorporate the
likelihood of success and relative value creation from a sale. On this front
we are encouraged by the prospects. To start, as a result of the strength and
diversity of the Company's group of businesses, Gardner Denver can be
expected to generate an impressive level of cash flow, even under various
cyclical revenue decline scenarios that might unfold. Such high, sustainable
cash flow is highly valued in the private transaction market where the costs
of debt capital are currently relatively low and financing availability is
high. This contrasts with a public market mindset more focused on near-term
earnings growth, than underlying cash flow production, and limited patience
to ride out business and economic cycles.
There are a number of comparably-sized industrial sector companies for
sale, or that have been sold recently, for which debt financing commitments
have been obtained in the range of 6x EBITDA. With blended all-in debt
financing rates, at those leverage levels, likely in the 7.5% to 8.5% range,
financing conditions are uniquely conducive to large private equity
transactions and supportive of valuation multiples well in excess of public
trading multiples for comparable businesses. This is evidenced, most
relevantly, in the announcement today of United Technologies' sale of its
Hamilton Sundstrand industrial unit to Carlyle Group LP and BC Partners for
$3.5 billion. This transaction is reportedly priced at a valuation multiple
approaching 9x EBITDA, utilizing debt financing greater than 6x.
We believe private equity buyers will not be deterred by the various
concerns that may weigh on a public market valuation of the Company for the
foreseeable future. First, private equity buyers often work with operating
executives within their organizations or past CEOs with which they have had
-------------------------- -------------------------
CUSIP NO. 365558105 Page 16 of 16
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success and thus will not be daunted by the current leadership transition. In
fact, we think the strength of the finance team and divisional heads and the
becoming-ingrained lean organizational culture will be a significant selling
point. Secondly, the implied valuation for the announced acquisition of
Hamilton Sundstrand Industrial, a business subject to many of the same
economic cycle risks as GDI, evidences the multi-year investment horizons of
private equity firms that allow them to see through to the other side of
potential cycles. We believe the well-laid out margin improvement initiatives
at GDI, including the planned European restructuring, will be valued by
private equity buyers, given the clear visibility these initiatives provide
to sustainable free cash flow growth independent of the macroeconomic cycles.
For all of these reasons, we recommend the board of GDI, at its
upcoming board meeting, approve the immediate retention of advisors for
purposes of running a sale process targeting an all-cash offer for 100% of
the common shares of Gardner Denver. Our assessment of the situation, founded
in our extensive experience, suggests there is a high likelihood of the board
being able to secure for shareholders an attractive premium to GDI's current
trading price. We believe such valuation will be considered highly-attractive
by your current shareholders compared to the valuation they might hope to
receive longer-term for their shares if the board pursued the path of
appointing a new CEO, solidifying its organization and implementing the
identified initiatives slated to drive value creation, while attempting to
navigate an extremely uncertain economic environment.
We are prepared to assist if we can be helpful in any way--including
in a board role--with a strategic alternatives review, as well as the
ultimate execution of our recommended sale process path. We have extensive
experience directing successful sale and divestiture processes from the
board, often under similarly unfortunate circumstances. We would be pleased
to share our thoughts further on this subject at your convenience.
Respectfully,
/s/ Gregory P. Spivy
Gregory P. Spivy
Partner
Cc: Michael M. Larsen, Interim Chief Executive Officer, Gardner Denver Inc.