Emerson’s $5.2 Billion in Asset Sales Allow Focus on M&A

  • Sale of network power, motors part of year-old restructuring
  • ‘We’re going to look to go out and buy assets,’ CEO Farr says

Emerson Electric Co. took the largest step in a year-old plan to overhaul its business, announcing two asset sales for $5.2 billion as it hunts for acquisitions to focus on industrial automation and consumer products.

Emerson will sell its network-power division to Platinum Equity and other investors for $4 billion, the St. Louis-based company said in a statement Tuesday morning. Several hours earlier, the company said Japan’s Nidec Corp. agreed to pay $1.2 billion for two businesses that produce motors, drives and alternators. 

Emerson’s plans to unload the underperforming businesses were announced in June of last year following disappointing earnings growth. The restructuring includes a cost-cutting program to save more than $400 million a year. 

The next step is to expand the refocused company through acquisitions. Emerson will be left with a commercial and residential division -- which makes compressors for home air conditioners and consumer products like InSinkErator garbage disposals -- and an automation unit -- which makes such items as wireless meters for pipelines.

“We’re going to look to go out and buy assets and leverage those two businesses, which are two very strong, global, profitable businesses,” Chief Executive Officer David Farr said in a conference call with analysts. 

Erased Epitaph

Farr, who became CEO in 2000, now will have to prove to investors that he can make smart acquisitions after he cobbled together the network-power operation to tap into the need for equipment to run data centers. The business turned out to be less profitable than assumed because of fierce competition and the ever-changing needs of tech-giant customers such as Amazon.com Inc. and Facebook Inc. 

Farr has said that building the business was a misstep and said last year he wouldn’t want to “put that on my tombstone.” The network-power sale is targeted to close by year-end, and Emerson will maintain a stake in the business.

“The expected gross cash proceeds are near the low end of the $5-$6 billion range” that Emerson had projected for the deals in February, Deane Dray, an analyst with RBC Capital Markets, wrote in a note to investors. Emerson’s shares fell 4.9 percent to close at $53.03 in New York after the company also cut its 2016 earnings forecast. 

A “bright spot,” Dray said, was that the network-power deal removes the possibility that the unit would be spun off, which investors had resisted.

Selling ClosetMaid

Emerson plans to sell its ClosetMaid unit, which makes storage shelving and doesn’t fit with the new focus, Farr said. The company predicted after-tax cash proceeds from the deals announced Tuesday of about $4.3 billion. Emerson retains an interest in the network-power division that will pay out if the business performs well, Farr said.

Platinum Equity, a private-equity firm in Beverly Hills, California, founded by Tom Gores, in 2013 bought a controlling stake in Emerson’s embedded computing and power business, which was carved out of network power and now known as Artesyn Embedded Technologies.

The motor, drive and alternators businesses that Emerson sold are France-based Leroy Somer Holding and Control Techniques, which has headquarters in the U.K. The two businesses have 9,500 employees and had $1.7 billion in sales last year. Japan-based Nidec purchased other Emerson divisions in 2010.

For more on Nidec’s diversification plans, click here.

Disk Drives

Nidec, led by 71-year-old billionaire Chairman Shigenobu Nagamori, has announced deals valued at about $2.9 billion since 2000 to add more than 40 companies and form the world’s biggest maker of precision motors for hard-disk drives.

Emerson lowered its target for adjusted earnings this year to a range of $2.90 to $3 a share from a May forecast of $3.05 to $3.25. Analysts had predicted $3.07, according to the average of estimates compiled by Bloomberg. The profit doesn’t include separation costs of between $200 million and $250 million and a $100 million charge for the sale of the motors business.

The company reported fiscal third-quarter profit of 80 cents a share, falling short of the 84 cents predicted by analysts. Sales fell 6.9 percent to $5.13 billion for the quarter, which ended June 30, reflecting “challenging demand” in key markets and “global economic uncertainty.”

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