Emerson to Spin Off Network Power Unit, Explore More ChangesThomas Black
Emerson Electric Co. plans to spin off its Network Power unit, the least-profitable division, and explore options for other operations to help pump up earnings and a sagging stock price.
Businesses now under review include motors and drives, and power generation, St. Louis-based Emerson said Tuesday. The shares jumped in early U.S. trading ahead of a company conference call with analysts to explain the shift.
Network Power provides equipment to support data centers used by banks and Internet companies such as Facebook Inc. Profit at the unit slumped 20 percent in 2014 amid weak demand from financial customers and technological changes requiring rapid product upgrades, and Emerson told analysts in May that it was weighing options for the operations.
“We view this as positive news,” said Barbara Noverini, an analyst at Morningstar Inc. “In recent years, Emerson’s Network Power business required a lot of time and talent to compete in a market that has only grown more challenging.”
Spinning it off “allows the company to refocus capital and resources towards its higher-return businesses, such as Process Management and Climate Technologies,” Noverini said.
Emerson jumped 3 percent to $57.25 at 8:57 a.m. in New York ahead of regular trading. The shares slid 10 percent this year through Monday, lagging behind the 4.2 percent drop for the Standard & Poor’s 500 Industrials Index.
The separation won’t require approval from shareholders, Emerson said, projecting that the company’s various transactions would be completed by Sept. 30, 2016.
In shedding Network Power now, Chief Executive Officer David Farr is coming in at the tail end of a spinoff boom, with the number of deals dropping after reaching a peak in the last quarter of 2014.
Emerson’s sales fell 1 percent last year and are predicted to decline again in 2015, according to analysts’ estimates compiled by Bloomberg.
Network Power is Emerson’s second-biggest unit, behind the Process Management business that provides controls and software to oil producers. That operation has been crimped by slumping global crude prices.
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