The temperatures remain high, but the summer season is winding down so lets
catch up on some news we may have missed.
In early August, Emerson Electric (EMR) reached a deal to sell off its
network power business to a group led by private equity firm Platinum Equity for
the price tag of $4b. The unit generated revenue of ~$4.4b in 2015 and despite
heavy investment from Emerson over the years, the Network Power business never
fulfilled its potential within the company due to the fierce and ever changing
competitive environment.
Unfortunately the sale means that the spinoff of that unit, which would have
been named Vertiv, will likely not occur. The overall company has struggled
recently for numerous reasons, but has had some recent success in selling off
unwanted assets including Vertiv and its motors and electricity unit. Here is
Emerson’s Chairman and CEO David Farr putting the spin on the sale to Platinum:
So what to do with a sudden influx of cash? Why acquisitions of course! The
company is expected to use the proceeds on growing its core industrial
automation and consumer products businesses. According to Mr. Farr, ‘we’re going
to look to go out and buy assets and leverage those two businesses, which are
two very strong, global, profitable businesses’. Keep in mind this is the same
CEO who built a network power business, spent billions on M&A bulking it up and
then ultimately decided to shed the business last year. In fact, when the
spinoff was first announced, Mr. Farr famously noted that he ‘wouldn’t say I
would put that on my tombstone to say that was a strong accomplishment’. At
least he is honest.
The deal is expected to close by the end of this year and there is a breakup
fee of over $300m payable to Emerson if it doesn’t go through. If that were to
occur for some unexpected reason, I would guess the spinoff would be back on
track, but there is no reason to think that it is a likely outcome. Given that,
there is really nothing doing here anymore.
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