The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Sebastian Pellejero

NEW YORK, June 4 (Reuters Breakingviews) - Flowserve FLS.N and Chart Industries GTLS.N are following a simple premise: bigger is better. The industrial equipment makers on Wednesday announced a $19 billion all-stock merger of equals, creating a sprawling enterprise across cold storage and fluid control systems. Yet even with the promise of handy cost savings, investors sent their shares tumbling. Amid a rocky market and in the shadow of big industrial breakups, even straightforward M&A faces an understandably tough audience.

The deal is engineered to be conservative. Investors in Chart will receive a bit over 3 Flowserve shares for every share they hold. That leaves them with around 54% of the combined company, which should be worth $19 billion including debt based on Tuesday’s stock prices. The split works out such that neither side receives any premium.

The strategic logic seems sound on paper. Flowserve’s pumps, valves and seals complement Chart’s cryogenic equipment that cools both data centers and natural gas processing plants. The combined company will generate roughly $9 billion in sales, and management hopes that a broader product portfolio will capture more of customers' spending.

Yet Flowserve’s shares tumbled 5% by early afternoon in New York, while Chart fell 6%. That’s despite $300 million of projected cost savings. Capitalized and taxed at the standard U.S. corporate rate, they should be worth around $2.4 billion. Apportioned out by Chart and Flowserve shareholders’ relative ownership of the combined firm, that’s equivalent to a premium of between 16% and 17% on both sides, Breakingviews calculates. Furthermore, management expects that revenue boosts – always a trickier proposition - will lift growth by 2%.

There’s some cause for optimism. Chart’s $4 billion buyout of air and gas equipment maker Howden helped double its more-profitable after-market business to 30% of sales. The company’s operating margin has risen from 9% to 16%, while boss Jill Evanko claims the deal has generated nearly $1 billion in cost savings, far above an initial $250 million target.

Shares have nonetheless gained nothing since the deal’s announcement in November 2022. Elsewhere, splitting apart industrial giants lumbering under a conglomerate discount seems just as common as consolidation, from DuPont de Nemours to General Electric to Honeywell, after CEOs’ empire-building failed to translate into gains. Markets continue to whipsaw on every latest update in the trade war, with unclear impacts for industry. Until spreadsheet promises translate into profit, investors have a lot of history warning them to be cautious.

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CONTEXT NEWS

On June 4, equipment manufacturer Chart Industries and fluid control systems maker Flowserve said they had agreed to an all-stock merger of equals with an expected enterprise value of about $19 billion. Chart investors will receive 3.164 shares of Flowserve for each share they hold and will own 53.5% of the combined company.

Wells Fargo is advising Chart and Guggenheim is advising Flowserve.

(Editing by Jonathan Guilford; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on PELLEJERO/ Sebastian.Pellejero@thomsonreuters.com))