2.	Acquisitions and Divestitures

Material acquisitions

Pentair Ltd., formerly known as Tyco Flow Control International Ltd. (as used prior to the Merger (as defined below), “Flow Control”), took its current form on September 28, 2012 as a result of a spin-off of Flow Control from its parent, Tyco International Ltd. (“Tyco”), and a reverse acquisition involving Pentair, Inc. Prior to the spin-off, Tyco engaged in an internal restructuring whereby it transferred to Flow Control certain assets related to the flow control business of Tyco, and Flow Control assumed from Tyco certain liabilities related to the flow control business of Tyco. On September 28, 2012 prior to the Merger, Tyco effected a spin-off of Flow Control through the pro-rata distribution of 100% of the outstanding common shares of Flow Control to Tyco’s shareholders (the “Distribution”), resulting in the distribution of approximately 110.9 million of our common shares to Tyco’s shareholders. Immediately following the Distribution, an indirect, wholly-owned subsidiary of ours merged with and into Pentair, Inc., with Pentair, Inc. surviving as an indirect, wholly-owned subsidiary of ours (the “Merger”). The Merger was accounted for as a reverse acquisition under the purchase method of accounting with Pentair, Inc. treated as the acquirer. Flow Control’s net sales and income for the three months ending March 30, 2013 were $888 million and $22 million, respectively.

During the first quarter of 2013, the Company recorded fair value adjustments to its preliminary allocation of purchase price, including increases to accounts receivable, current liabilities, and net deferred tax liabilities and decreases to inventory, other current assets, property, plant and equipment and other non-current assets. These adjustments were applied retrospectively back to the date of the Merger. The net impact of those adjustments increased the preliminary allocation of goodwill by less than $1 million.

The purchase price has been preliminarily allocated based on the estimated fair value of net assets acquired and liabilities assumed at the date of the Merger. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. These adjustments will primarily relate to accounts receivable, inventories, property, plant and equipment, certain contingent liabilities and income tax-related items. We expect the purchase price allocation to be completed in the third quarter of 2013. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation. The purchase price is subject to a working capital and net indebtedness adjustment.

The following table summarizes our preliminary fair values of the assets acquired and liabilities assumed in the Merger:


In millions

Cash and cash equivalents	$	692
Accounts and notes receivable		774
Inventories		1,045
Other current assets		98
Property, plant and equipment		820
Goodwill		2,526
Intangibles		1,425
Other non-current assets		275
Current liabilities		(865)
Long-term debt		(915)
Income taxes, including current and deferred		(361)
Other liabilities and redeemable noncontrolling interest		(591)

Total purchase price	$	4,923

The excess of purchase price over tangible net assets and identified intangible assets acquired was allocated to goodwill in the amount of $2,526 million. Goodwill has been preliminarily allocated to our reporting segments as follows: $321 million to Water & Fluid Solutions, $1,334 million to Valves & Controls and $871 million to Technical Solutions. None of the goodwill recognized from the Merger is expected to be deductible for income tax purposes. Goodwill recognized from the Merger reflects the value of future income resulting from synergies of our combined operations. Identifiable intangible assets acquired as part of the Merger were $1,425 million and include $362 million of indefinite life trade name intangibles and the following definite-lived intangibles: $906 million of customer relationships with a weighted average useful life of 14.2 years, $116 million of proprietary technology with a weighted average useful life of 13.7 years and $41 million of customer backlog with a weighted average useful life of less than one year.

Pro forma results of material acquisitions

The following unaudited pro forma condensed consolidated financial results of operations are presented as if the Merger had been completed on January 1, 2011:


	Three months ended
In millions, except per-share data	March 31, 2012

Pro forma net sales	$	1,857
Pro forma net income attributable to Pentair Ltd.		107
Diluted earnings per common share attributable to Pentair Ltd.		0.51

The 2012 unaudited pro forma net income excludes the impact of $12 million of transaction related costs associated with the Merger.

The pro forma consolidated financial information was prepared for comparative purposes only and includes certain adjustments, as noted above. The adjustments are estimates based on currently available information and actual amounts may have differed materially from these estimates. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of Flow Control. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the business combination occurred at the beginning of the period presented or of future results of the consolidated entities.

Other acquisitions

On October 4, 2012, we acquired, as part of Valves & Controls, the remaining 25% equity interest in Pentair Middle East Holding S.a.r.l. (“KEF”), a privately held company, for $100 million in cash. Prior to the acquisition, we held a 75% equity interest in KEF, a vertically integrated valve manufacturer in the Middle East. There was no pro forma impact from this acquisition as the results of KEF were consolidated into Flow Control’s financial statements prior to acquiring the remaining 25% interest in KEF.

Additionally, during the year ended December 31, 2012, we completed other small acquisitions as part of Water & Fluid Solutions with purchase prices totaling $121 million in cash, net of cash acquired. Total goodwill recorded as part of the purchase price allocations was $81 million, $67 million of which is tax deductible.

Divestitures

During the first quarter of 2013, we sold a business that was part of Technical Solutions for cash of $30 million, net of transaction costs, resulting in a gain of $17 million. Goodwill of $5 million was included in the assets of the business sold. The sales price is subject to a working capital adjustment.