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 (mainly for fans of this site), 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:
This agreement marks a major milestone in the strategic portfolio repositioning we announced last June…By selling Network Power to Platinum Equity, we have achieved a successful result for our shareholders as part of our plan to streamline Emerson to create a more focused company with significant opportunities for growth and profitability in our core served markets. We believe Network Power has a bright future ahead and Platinum Equity is well-positioned to help the company continue to thrive and realize its full potential.
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.
(thanks to reader DR for pointing out we missed this)
Disclosure: Author holds no position in any stock mentioned.
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