DealZone

S&P: No subtext in industrial exodus from benchmark

August 25, 2009

Manitowoc Co is set to be the third U.S. manufacturer dropped from the Standard & Poor’s 500 index this year — but the brains behind the benchmark said the shift does not reflect a desire to soft-pedal the sector.¬†

David Blitzer“Our general concern about sectors is the proportions of sectors in the market and the index should be close to one another, and close is around a percentage point or so,” said David Blitzer, an S&P managing director who chairs the index committee. “Given that the 500 is 75 to 80 percent of the total market cap of the U.S. market, we’re never going to be too far off.”

S&P said late on Monday that it would remove Manitowoc, a maker of cranes and ships, from the benchmark S&P 500 after the close of trading on Aug. 31, noting that its market capitalization ranked it last in the group.

Manitowoc will be replaced by Cardinal Health Inc spin-off, CareFusion Corp, a medical products company.

In March, Tyco International Ltd was dropped from the index, followed by Ingersoll-Rand Co in June. They were replaced by New England’s largest utility Northeast Utilities and utilities contractor Quanta Services Inc.

But Tyco and Ingersoll had something in common besides their sector — they both reincorporated from Bermuda to Europe, making them ineligible for inclusion on this list.

“Two of the three industrials that left did it themselves,” Blitzer said.

Leaving the index — whose members are widely held in a variety of mutual and index funds — can take a toll on a stock’s performance. Manitowoc shares were down 7 percent at $6.35 on Tuesday, on a day that U.S. stocks were mostly higher.

But that penalty has not deterred some companies’ interest in making a move, in the face of concerns that the Obama adminsitration may crack down on incorporations in countries including Bermuda seen as an effort to avoid taxes.

Cooper Industries Ltd in June said it planned to reincorporate to Ireland, joining Ingersoll, saying that lower taxes and regulatory costs would help its bottom line.

But Blitzer laughed at the idea that S&P could even try to muscle any single sector out of its benchmark index.

“I don’t think that we could do it, not that we’ve ever tried,” be said. “It just wouldn’t work.”

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