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* KKR offers $76 per share for Garden Denver
* Offer a 3 pct premium to Garden Denver's Thursday close
* Shares rise to $74.83 in early trade
By A. Ananthalakshmi
March 8 (Reuters) - Industrial machinery maker Gardner Denver Inc agreed to sell itself to private equity firm KKR & Co LP for $3.74 billion after the buyout firm raised its offer.
The deal follows several months of a hot and cold auction process that initially drew interest from diversified manufacturer SPX Corp and other private equity firms but left KKR as the only bidder at the end.
KKR will pay $76 for each Gardner Denver share, sweetening its so-called final offer of $75 per share and representing a 39 percent premium to the company's stock price on Oct. 24, the day before Reuters broke the news of a potential sale.
Shares of Gardner Denver rose 1 percent to $74.70 on the New York Stock Exchange on Friday, suggesting investors do not expect a higher bid.
Including debt, the deal is valued at $3.9 billion, the companies said in a statement on Friday.
The Wayne, Pennsylvania-based company, which makes compressors, pumps and vacuum products for industrial uses, reported stronger-than-expected quarterly results late last month, helped by a restructuring program at its European operations.
The company, however, forecast 2013 earnings below expectations, which analysts termed conservative. They have since raised their price targets, saying the company's business was improving.
KKR has been in the pole position to clinch a deal after other private equity bidders including Advent International, TPG Capital and Onex Corp, which initially took part in the auction, abandoned the process, people familiar with the matter have told Reuters.
"We understand KKR's reluctance to bid against itself as the last remaining bidder, but if $75 was unacceptable, then $76 hardly seems like a victory," BB&T Capital Markets analyst Kevin Maczka said.
SPX had offered to buy Gardner Denver for $85 per share after it put itself up for sale, but SPX abandoned the plan in December after its shareholders questioned the logic of a merger, sources have said.
Activist investor ValueAct, Garden Denver's third-largest shareholder and an early proponent of a sale, came out in support of KKR's initial $75 offer. The investor reported a roughly 5 percent stake in the company in July.
Another top 10 shareholder, who requested anonymity, told Reuters on Friday that it was fine with the current offer.
But some analysts questioned if Gardner Denver is getting the best possible price.
Robert W. Baird analyst Michael Halloran said the company was worth more than $80 per share and that the $76 valuation is below Gardner Denver's peer group multiples.
KKR and Gardner Denver said they expected the deal to close in the third quarter of 2013.
The deal will be financed by UBS, Barclays , Citigroup, Deutsche Bank, RBC Capital Markets, Mizuho and KKR Capital Markets.
Goldman Sachs advised Gardner Denver while UBS Securities and Simmons & Co International served as financial advisers to KKR.