Emerson Completes Sale of Remaining 40% Stake in Copeland

Emerson Electric Co. EMR recently divested the remaining 40% common equity ownership in Copeland to Blackstone Inc. BX. The transaction was valued at approximately $3.5 billion, with pre-tax cash proceeds of $3.4 billion.

Headquartered in New York, Blackstone Inc. is an asset manager of alternative investments and a provider of financial advisory services globally. Effective Sep 18, 2023, the company joined the S&P 500 index, becoming the first major alternative asset manager to be part of the index. As of Mar 31, 2024, total AUM was $1.06 trillion and fee-earning AUM was $781.4 billion.

Based in the United States, Copeland is an independent company, which offers a diverse range of products, including compressors, controls, thermostats, valves and software solutions. These products serve residential, commercial and industrial customers around the globe.

The divestment of Copeland will help Emerson to focus on its core businesses and to strengthen its position as a global leader in automation. The company expects to use the cash proceeds of $2.9 billion of the transaction, net of modest taxes, to reduce its debt.

Emerson has lately been aiming to divest non-core/non-profitable businesses to better focus on and efficiently direct resources to its core businesses. In the first quarter of fiscal 2023, the company exited its Russia business operations. Also, in November 2022, it divested its InSinkErator business to Whirlpool.

Existing Business Scenario

Emerson has been experiencing healthy demand across most of its end markets. Solid demand in the process and hybrid industries is boosting underlying sales. The company anticipates sales in the process industry to be robust in fiscal 2024, driven by strength in energy, LNG, chemical and power end markets. Also, solid life sciences project momentum in North America and robust metals and mining activity bode well for the hybrid industry.

The company is benefiting from the strong performance of the Intelligent Devices and Software and Control segments. Within the Intelligent Devices segment, it is seeing strength in the Final Control business, driven by solid momentum in energy and power end markets. Robust growth in all geographies and strong backlog conversion level are aiding the Measurement & Analytical business.

Within the Software and Control segment, strength in the process industry, driven by energy transition and traditional energy markets, is supporting the Control Systems & Software business. Strength in aerospace and defense end markets, driven by rising U.S. defense budget and increasing government research, is supporting the Test & Measurement business's growth.

However, Emerson has been dealing with the adverse impacts of the high cost of sales and operating expenses. Rising material and freight costs are pushing up the cost of sales, which increased 7% in the second quarter of fiscal 2024. Selling, general and administrative expenses rose 29.6% to $1.3 billion due to increased acquisition-related and stock compensation expenses. The impact of these expenditures is evident in the rise of the selling, general and administrative expenses as a percentage of total revenues, which climbed 300 basis points to reach 29.6%.

Emerson offers a wide range of products and services to customers in consumer, commercial and industrial markets. The company, which belongs to the Zacks Manufacturing-Electronic industry, faces stiff competition from competitors like Powell Industries, Inc. POWL and EnerSys ENS.

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