Bloomberg Businessweek - USA (2019-10-14)

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◼ LAST THING

With Bloomberg Opinion

By Brooke Sutherland

Another Industrial Giant

May Break Up

What do garbage disposals have in

commonwithfactoryautomationtools?

Notmuch,butEmersonElectricCo.will

gladlysellyouboth,atleastfornow.

Chief ExecutiveOfficerDavidFarr

announcedatthebeginningofOctober

thatthecompanywouldconducta com-

prehensivereviewofitsbusinessesas

it adaptsto“achallenginggeopolitical

andeconomiclandscape.”It wasper-

hapsnocoincidencethatthisannounce-

mentcamecloseontheheelsofreports

thatactivistinvestorD.E.Shaw&Co.

hasbuilta stakeinEmersonandwillpushfora breakup.

Thecompany’sstructure—ithasanautomationunitthat

sellsvalvesandmeasurementsystemsanda commercial

andresidentialdivision

thatsellsairconditioner

controls, garbage dis-

posals, andheavy-duty

vacuums—feelsobsolete

inanagewhenindustrial

conglomerates aresys-

tematicallydismantling

themselvesinthename

ofgreaterfocus.

After 19 yearsatthe

helm,Farrisoneofthe

longest-tenured indus-

trialCEOs.Accordingto

analysts, he’s signaled

$73

● MIDDLING RETURNS

That potential payoff, an average of

three analyst estimates, isn’t that

attractive stacked against the cost

and time entailed in executing a split.

● SUM OF ITS PARTS

Emerson’s stock should be worth

14% more than the $64 it traded for

before the breakup talk, if its main

units are valued comparably to peers.

his intention to retire in fiscal 2021 or

2022 and would prefer to leave any

decision on a breakup to his successor.

Butthemanufacturingeconomyhas

softened,draggingdown Emerson’s

growthandimperiling its earnings tar-

gets. The company warned in August

that customers had pushed $350  mil-

lion of projects planned for 2019 to

next year and delayed $450 million of

2020 projects until 2021. With that back-

drop and an activist investor knock-

ing, Farr may no longer be in a position

to prolong a decision on a split, even if the eventual pay-

off for investors doesn’t look that compelling on paper.

People familiar with the matter told Bloomberg News

that D.E. Shaw believes each piece of Emerson could find

a buyer, which could boost the ultimate returns. With spec-

ulation of consolidation in the heating and air conditioning

market rampant of late, there’s likely to be ample interest

in Emerson’s assets in the industry. The myriad other busi-

nesses that get lumped into the commercial division could

find a home with private equity. Meanwhile, should the

automation business become unencumbered and poten-

tially in need of a CEO in the near term, it could pique the

interest of Rockwell Automation Inc. head Blake Moret.

Rockwell rebuffed an Emerson takeover approach in 2017.

Emerson has seen some significant overhauls in its

129-year history. For better or worse, it seems headed

toward another. <BW> �Sutherland is a deals columnist for

Bloomberg Opinion