ATLANTA (Reuters) - ITT Corp plans to break itself into three companies as U.S. defense budget tightening threatens to cut into the manufacturer's profits, sending shares of the company up 18 percent in pre-market trading.
Shareholders will own stock in all three companies, which are expected to be traded on the New York Stock Exchange.
The move, which ITT announced on Wednesday, makes sense, Deutsche Bank analyst Nigel Coe wrote in a note to clients.
"Investors have become increasingly concerned about the earnings headwind from impending U.S. defense budget cuts, which was likely to have depressed ITT's earnings growth potential for the foreseeable future."
The maker of water pumps and night vision goggles for the military said one company would supply water pumps to cities and other customers.
Its defense segment will be the second company, while "ITT Corp," the third, will survive as an aerospace, transportation, energy and industrial engineering company.
Defense, ITT's largest segment, faces pressure as U.S. spending on defense slows, ITT has noted improvement in recent quarters in its water pump and motion and flow control segments as industrial and aerospace markets improve.
Pro forma 2011 revenue for the future ITT Corp is estimated at $2.1 billion, the company said in a statement.
ITT expects to finish the breakup by the end of the year.
ITT shares, which gained 10 percent of their value in the last three months, were up about 18 percent in premarket trading from their Tuesday close of $52.78 on the New York Stock Exchange.
(Reporting by Karen Jacobs in Atlanta, Bijoy Koyitty in Bangalore and Scott Malone in Boston. Editing by Sriraj Kalluvila and Robert MacMillan)
