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By Rebecca Spalding
(Reuters) – Emerson Electric Co (N:) told investors on Thursday it would not pursue a break-up following a review it launched last year that examined whether it should separate its industrial automation operations from its air-conditioning business.
Breaking up Emerson was one of the demands made by hedge fund D.E. Shaw & Co LP last October, when it announced it owned more than 1% of the company. Emerson unveiled some corporate governance changes in November that won D.E. Shaw’s endorsement and avoided a challenge to its board.
A spokesman for D.E. Shaw declined to comment on Thursday on whether the hedge fund remains an Emerson shareholder and what its reaction to the company’s announcement was.
Emerson, which pursued an unsuccessful $29 billion acquisition bid for peer Rockwell Automation Inc (N:) in 2017, had long been seen as a potential break-up candidate among investors and analysts. Its automation solutions business serves mostly industrial clients, while its remaining divisions cater primarily to commercial and residential markets.
Emerson said in a presentation to its investors that it will not break up “unless a major strategic acquisition catalyst is actioned.” The St Louis-based company also said that it had earmarked $4 billion for acquisitions.
Through a series of cost cuts and operational changes, Emerson said it aimed to reach 44% gross margin by 2023 from 42.5% in 2019,and $4 billion in operating cash flow by 2023 from $3 billion in 2019.
D.E. Shaw had argued that cost cuts, in conjunction with a break-up, could add more than $20 billion in equity value to the company.
D.E. Shaw praised Emerson in November, when the latter appointed former Flowserve Corp (N:) Chief Executive Mark Blinn to its board after discussions with the hedge fund. Emerson also agreed to review its executive pay packages.
Emerson was the first major company to be publicly pursued by D.E. Shaw after it lost its main shareholder activism portfolio manager, Quentin Koffey, to a rival hedge fund, Senator Investment Group LP.
Emerson reiterated on Thursday that David Farr, who has been its chief executive since 2000, will retire by 2021.
Emerson shares fell about 2.5% to $73.05 on Thursday afternoon in New York, giving the company a market capitalization of $45 billion. Since D.E Shaw’s stake in Emerson became public on Sept. 27, its shares have risen more than 9 percent.
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