ITT Corp to break itself up, shares rise 18 percent

(Reuters) - U.S. manufacturer ITT Corp (ITT.N) plans to split itself into three companies that it says will be better able to react to changing market demands such as U.S. defense budget cuts.

Its shares rose 18 percent on Wednesday, reaching their highest point since the fall of 2008. Analysts saw the move as clearing the way for its water and industrial control businesses to grow more quickly.

"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," Deutsche Bank analyst Nigel Coe wrote in a note to clients.

U.S. Defense Secretary Robert Gates last week said he plans to cut $78 billion from the nation's military budget over the next five years because of the government's growing budget deficit.

Shareholders will own stock in all three companies, which likely will be traded on the New York Stock Exchange.

"We believe that each of these future companies will be strategically well positioned for growth," Chief Executive Steve Loranger said on a conference call.

ITT Corp will continue as an aerospace, transportation, energy and industrial engineering company. Another company will make water pumps for cities and other users. A third will make military equipment.

DE-CONGLOMERATION

The White Plains, New York-based company joins a list of U.S. conglomerates that have streamlined themselves in recent years.

Tyco International Ltd (TYC.N) in 2007 spun off its healthcare and electronics divisions into separately traded companies, Tyco Electronics Ltd (TEL.N) and Covidien (COV.N).

Last year, industrial conglomerate Danaher Corp (DHR.N) and electrical products maker Cooper Industries (CBE.N) married parts of their tool businesses in a joint venture that Cooper's chief financial officer has said could lead to an initial public offering.

In coming months, analysts have said bearings maker Timken Co (TKR.N) may move to spin off its steel division.

General Electric Co (GE.N) this month expects to close its sale of a majority stake in NBC Universal media to Comcast Corp (CMCSA.O), marking its exit from a business that investors long said fit poorly among its industrial franchises.

And Chief Executive Jeff Immelt has trimmed back the company's GE Capital unit in the past two years, focusing the company more on manufacturing.

Pro forma 2011 revenue for the future ITT Corp is estimated at $2.1 billion, the company said in a statement.

TT 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 $9.61 to $62.39 in morning trading on the New York Stock Exchange.

(Reporting by Karen Jacobs in Atlanta, Nick Zieminski and Soyoung Kim in New York and Bijoy Koyitty in Bangalore. Writing by Scott Malone in Boston. Editing by Sriraj Kalluvila and Robert MacMillan)