Emerson Electric Co. (EMR) has successfully divested its remaining 40% common equity ownership in Copeland to Blackstone Inc. (BX) for a substantial $3.5 billion. This deal, finalized with pre-tax cash proceeds of $3.4 billion, marks a significant step for Emerson as it streamlines its portfolio and focuses on its core business operations.
Blackstone Inc., headquartered in New York, is a prominent player in the global financial landscape, known for its expertise in alternative investments and financial advisory services. Its recent addition to the S&P 500 index, effective September 18, 2023, cemented its position as a leading force in the alternative asset management space. As of March 31, 2024, Blackstone boasts impressive assets under management (AUM) totaling $1.06 trillion, with $781.4 billion representing fee-earning AUM.
Copeland, an independent company based in the United States, has established a strong reputation for its diverse range of products. These include compressors, controls, thermostats, valves, and software solutions that cater to a global clientele spanning residential, commercial, and industrial sectors.
Emerson’s decision to divest Copeland is strategically driven by its commitment to sharpening its focus on core business operations and strengthening its position as a global leader in automation. The company plans to utilize a significant portion of the transaction’s cash proceeds – $2.9 billion after accounting for modest taxes – to reduce its outstanding debt.
This divestiture is a continuation of Emerson’s recent strategy to shed non-core or non-profitable businesses. Earlier this year, the company exited its operations in Russia during the first quarter of fiscal 2023. In November 2022, they further divested their InSinkErator business to Whirlpool.
While Emerson navigates this strategic shift, its core businesses continue to experience healthy demand across numerous end markets. The company is witnessing robust sales driven by solid demand in process and hybrid industries. Projections for fiscal 2024 anticipate strong sales growth in the process industry, fueled by the strength in energy, LNG, chemical, and power end markets. Additionally, the hybrid industry is benefiting from substantial momentum in life sciences projects across North America and robust activities in the metals and mining sectors.
Emerson’s Intelligent Devices and Software and Control segments are contributing significantly to its overall performance. The Intelligent Devices segment is seeing strength in its Final Control business, driven by positive momentum in energy and power end markets. The Measurement & Analytical business is also experiencing strong growth across various geographies, supported by a robust backlog conversion level.
Within the Software and Control segment, the Control Systems & Software business is benefiting from the strong performance of the process industry, particularly in energy transition and traditional energy markets. The Test & Measurement business is experiencing growth fueled by strength in aerospace and defense end markets, driven by an increasing U.S. defense budget and rising government research investments.
Despite its positive performance, Emerson faces challenges from rising costs, particularly in sales and operating expenses. Material and freight costs have significantly increased, leading to a 7% rise in the cost of sales during the second quarter of fiscal 2024. Selling, general, and administrative expenses have also risen by 29.6% to $1.3 billion, driven by higher acquisition-related and stock compensation expenses. The impact of these expenditures is evident in the increase of selling, general, and administrative expenses as a percentage of total revenues, which climbed 300 basis points to reach 29.6%.
Emerson’s strategic focus on its core businesses and its efforts to navigate rising costs position the company for continued success in the dynamic global marketplace.
