Siemens approaches Emerson over network power: Reuters

Siemens AG (SIEGn.DE) has approached Emerson Electric Co (EMR.N) to explore buying the network power business that the U.S. factory automation equipment maker is looking to shed for as much as $4 billion, people familiar with the matter said.

Emerson said last June it planned to spin off the power business to concentrate on its industrial automation operations as well as its commercial and residential heating and air conditioning divisions.

Emerson’s network power business provides equipment and services that stop mission-critical systems from failing, including surge prevention, uninterruptible power supplies and precision cooling.

Its main customers are operators of data centres and telecoms networks and energy providers and its main rivals are Eaton (ETN.N) and Schneider Electric (SCHN.PA). Siemens could combine the business with its power-distribution activities.

Emerson, also exploring options for the rest of its non-core businesses, is talking with private equity firms, including Platinum Equity LLC, about a sale, the people said, which would be simpler and less risky than a spin-off.

Other companies have also expressed interest, according to the people.

There is no certainty over which course of action Emerson will pursue and no deal is likely until later this year, the people said, asking not to be identified because the negotiations are confidential.

Siemens, Emerson and Platinum Equity declined to comment.

VALUATION

A price of $4 billion would imply an enterprise value of 0.9 times 2015 sales and 18 times EBIT (earnings before interest and tax), capital goods analysts at Barclays said, almost twice the EV/EBIT multiple of Emerson as a whole.

The Barclays analysts said Siemens would be able to combine some of its products with Emerson’s but they also said: “We struggle to see at this stage how the company could materially improve the growth and margin profile of this business.”

Barclays rates Siemens “equal weight”.

Emerson’s network power sales fell 1 percent in the quarter to end-December, reflecting what it called “mixed conditions in data centre and telecommunications infrastructure spending”. Its profit margin rose to 8 percent thanks to restructuring.

That compares with a 6.6 percent operating profit margin at Siemens’ energy management unit in the quarter on flat sales.

Siemens trades at 2015 EV/EBIT of 15.0, Eaton at 12.5 and Schneider Electric at 11.4.

The remaining non-core businesses that Emerson has been looking to sell include its motors and drives, power generation and remaining storage businesses.

Collectively, these assets generate around $200 million in annual earnings before interest, tax, depreciation and amortisation, sources have previously told Reuters.

St. Louis, Missouri-based Emerson has seen its earnings hit by a strong dollar and a drop in oil prices, which have curtailed spending by customers.

Rivals, such as General Electric Co (GE.N) and Rockwell Automation Inc (ROK.N), have also been hit by weak oil prices.

Siemens’ healthcare, transportation and energy-management businesses have benefited from a weak euro and cost cuts.

Source: Reuters

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