Emerson Electric to spin off network power business

(Reuters) - U.S. factory automation equipment maker Emerson Electric Co EMR.N said it planned to spin off its network power business as part of its efforts to focus on high-growth businesses.

Emerson Electric Company Canadian headquarters is shown in Markham February 7, 2012. REUTERS/Mike Cassese

The network power business, which makes power systems that help keep telecommunication systems, data networks and other critical business applications operating continuously, accounted for about 20 percent of total sales in 2014.

The decision to spin off the business resulted from a roughly year-long strategic review with the company’s board.

“When we built the business over the last 10, 15 years, the marketplace has changed dramatically,” Chief Executive David Farr told Reuters.

“So the timing was right to give this network power team a chance to grow and prosper with different types of targets for growth and profitability.”

Sales at the network power unit fell 18 percent in 2014 and 9 percent in the second quarter ended March 31, as global telecommunications companies cut spending.

“We expect investors to applaud the long-awaited decision to exit this lightning rod of discontent, which we have consistently viewed as the first step in Emerson’s ambitions to return to a premier, higher-quality multi-industry name,” RBC Capital Markets analyst Deane Dray wrote in a note.

The spin-off would result in two standalone publicly traded companies, Emerson said on Tuesday. The transaction is expected to be completed by Sept. 30, 2016.

Wells Fargo Securities analyst Richard Kwas estimates the unit’s enterprise value to be in the range of $4 billion-$6 billion.

Emerson said it would also explore “strategic alternatives” for its motors and drives, power generation and remaining storage businesses.

The motors and drives and the power generation businesses are housed in the company’s industrial automation unit, which contributed 20 percent to total sales last year.

Emerson said it would focus on its remaining industrial automation businesses, along with process management, and commercial and residential heating and air conditioning businesses.

The company sold its power transmission unit to Regal Beloit Corp RBC.N for $1.44 billion in December.

Last month, Emerson reported second-quarter revenue and profit below analysts’ estimates. Consequently, the company accelerated its restructuring-related spending plans for 2015.

JP Morgan and Centerview Partners are the financial advisers to the company.

Emerson’s shares were marginally up at $55.70 in late morning trading on the New York Stock Exchange on Tuesday. Up to Monday’s close, the stock had fallen about 10 percent this year.

Editing by Savio D’Souza and Maju Samuel