Hedge Fund D.E. Shaw Pushes Emerson to Cut Costs, Break Up
October 15 2019 - 11:37AM
Dow Jones News
By Micah Maidenberg
D.E. Shaw Group wants Emerson Electric Co. (EMR) to reduce
expenses and split the industrial conglomerate into two, as the
company's returns have trailed those offered by peers and key
benchmarks.
Emerson has a poor record on spending, capital allocation and
governance issues, among other problems, according to a letter D.E.
Shaw sent to the company's board and released Tuesday.
"We believe that Emerson has the assets and businesses to be a
great company with a premium valuation, but the management team and
board have let shareholders down," D.E. Shaw said in its letter,
adding that it currently owns more than 1% of Emerson's stock.
Shares of Emerson rose about 2% to $68.28 in morning trading
Tuesday.
Based in St. Louis, Emerson develops a wide range of products,
operating a business focused on industrial-automation technology
and another focused on climate controls, like thermostats and
residential heating and cooling systems.
The company will evaluate proposals from D.E. Shaw, Emerson's
lead independent director, Clemens A.H. Boersig, said in a
statement Tuesday. The company has a strong record of operational
excellence and delivering returns to shareholders, the statement
said.
The investor wants Emerson to separate into two companies, with
one focused on automation and the other offering climate
technologies, according to D.E. Shaw's letter.
Emerson said earlier this month its board was leading a review
of the company's operations, approach to capital allocation and
other matters.
Total returns offered by Emerson shares have underperformed
peers by 45% over the last five years and the S&P 500 Index by
47%, D.E. Shaw said in the letter.
Emerson could save $1 billion annually through cost reductions
and efficiency gains, mostly within its automation business and
corporate headquarters, the investor said.
For example, D.E. Shaw said it believes Emerson could save $200
million by downsizing the company's aviation department, which
includes eight aircraft and a helicopter, and by reducing "excess"
corporate general and administrative costs, among other changes,
according to a presentation the investor also released Tuesday.
Other savings could come from consolidating manufacturing sites
and bolstering productivity among the company's salesforce, D.E.
Shaw said.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
October 15, 2019 11:22 ET (15:22 GMT)
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