Emerson Electric Company (EMR) recently divested 51% stake in its embedded computing and power business to private equity investment firm Platinum Equity, retaining the remaining 49% non-controlling ownership stake in the business.
Platinum Equity is a global leader specializing in mergers, acquisitions and operations of companies and has completed more than 150 acquisitions. It serves a wide range of business markets including information technology, telecommunications, logistics, metals services, manufacturing and distribution.
In August this year, Emerson had announced its decision to divest the business and the deal was valued at approximately $300 million. The deal was expected to close in a span of three to six months after gaining regulatory approvals. However, fast regulatory approvals allowed the deal to close well before six months, resulting in $175 million lower-than-previously expected sales and about $25 million less pretax earnings in the first quarter and full year 2014 for Emerson.
According to the agreement, the embedded computing and power business will continue to operate as an independent company after the divestiture. Emerson intends to use the equity method of accounting to report sales and earnings generated from the separate entity.
Emerson’s embedded computing and power business is one of the major providers of designs and technologies that are used in communication as well as computing equipment and other applications. The business was deemed to be a strategic misfit for Emerson’s portfolio. The company also cited weaker demand from the technology equipment and mobile device markets as one of primary reasons for the divestiture.
Post divesture, Emerson plans to focus more on its core business. Emerson believes that Platinum Equity has the required skills and expertise to give the business a competitive edge. Moving forward, Emerson will continue to benefit from Platinum’s strategies to position the embedded computing and power business as a strong and innovative competitor in the marketplace.
Emerson currently holds a Zacks Rank #3 (Hold). Other companies in the industry that are worth considering at the moment include Rexnord Corp. (RXN), AO Smith Corp. (AOS) and Alamo Group, Inc. (ALG). AO Smith Corp has a Zacks Rank #1 (Strong Buy), while Rexnord Corp. and Alamo Group both carry a Zacks Rank #2 (Buy).