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Stock in the industrial conglomerate Emerson Electric is moving after reports that the hedge fund D.E. Shaw has taken a stake in the company and is pushing for change.
Details are thin, but this looks like another situation where an activist tries to unlock value by breaking a large company into smaller pieces. Neither Emerson nor Shaw immediately responded to a request for comment.
Emerson (ticker: EMR) is large for an industrial company, with a market value of $40 billion. It reports results for two business segments: automation solutions and commercial & residential solutions.
The automation business make hardware and software that controls industrial processes. Emerson tried to bulk up in that area when it offered to buy Rockwell Automation (ROK) in 2017, although the deal fell through.
Emerson’s commercial & residential segment makes climate control equipment as well as tools, such as the Rigid brand, that consumers may be familiar with.
Industrial conglomerates have been getting smaller for years.
United Technologies (UTX) is breaking into three parts, a transformation activist investor Dan Loeb supported. (He is less sanguine about United Tech’s plan to merge with Raytheon (RTN) after the breakup is complete.)
DowDuPont split into three companies. And Honeywell (HON) also pared its portfolio of businesses, making a series of smaller divestitures. It spun out Resideo Technologies (REZI), AdvanSix (ASIX) and Garrett Motion (GTX) in recent years.
There are other examples, too. Ingersoll-Rand (IR) has spun off and merged businesses. Pentair (PNR) has done the same.
This is the era of managerial focus for industrial enterprises. It seems that no one wants to be a sprawling conglomerate any longer. Shaw could be pushing for Emerson to follow a similar path.
Investors are likely OK with Emerson’s management, based on the company’s stock performance. Over the past three years, Emerson shares have returned 11%, about the same annual average as other industrial components of the S&P 500.
This doesn’t appear to be a case where activists will push for change in the executive suite. That means Shaw would probably take a collaborative approach with management to implement whatever changes it suggests.
Emerson shares were up $1.50, or 2.3%, to $65.69 in Friday trading, better than the 0.6% decline of the Dow Jones Industrial Average.
Write to Al Root at allen.root@dowjones.com