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Hedge Fund D.E. Shaw Pushes Emerson to Cut Costs, Break Up

   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)

Copyright (c) 2019 Dow Jones & Company, Inc.