February 13, 2020 / 11:14 PM / 15 days ago

UPDATE 1-Emerson says will not pursue a break-up following internal review

(Adds Emerson CEO interview)

By Rebecca Spalding and Timothy Aeppel

Feb 13 (Reuters) - Emerson Electric Co told investors on Thursday it would not pursue a break-up following a review it launched last year into whether to separate its industrial automation operations from its air-conditioning business.

Breaking up Emerson was one of the demands made by hedge fund D.E. Shaw & Co LP last October, when it announced it owned more than 1% of the company. Emerson unveiled some corporate governance changes in November that won D.E. Shaw's endorsement and avoided a challenge to its board.

A spokesman for D.E. Shaw declined to comment on Thursday on whether the hedge fund remains an Emerson shareholder and what its reaction to the company's announcement was.

Emerson, which pursued an unsuccessful $29 billion acquisition bid for peer Rockwell Automation Inc in 2017, had long been seen as a potential break-up candidate among investors and analysts. Its automation solutions business serves mostly industrial clients, while its climate technology business caters primarily to commercial and residential markets.

Emerson said in a presentation to investors it will not break up "unless a major strategic acquisition catalyst is actioned." The St. Louis-based company also said that it had earmarked $4 billion for acquisitions.

"We are a multi-business company, no different than a Honeywell or any of these other companies. There are very few pure, pure plays out there,” Emerson Chief Executive Officer David Farr said in an interview with Reuters.

"It doesn’t mean we won’t sell certain things off, because we will. But the way it is right now, (the board) firmly believes that we create value with these platforms," Farr added.

Through a series of cost cuts and operational changes, Emerson said it aimed to reach 44% gross margin by 2023 from 42.5% in 2019, and $4 billion in operating cash flow by 2023 from $3 billion in 2019.

D.E. Shaw had argued that cost cuts, in conjunction with a break-up, could add more than $20 billion in equity value to the company.

D.E. Shaw praised Emerson in November, when the latter appointed former Flowserve Corp CEO Mark Blinn to its board after discussions with the hedge fund. Emerson also agreed to review its executive pay packages.

Emerson shares fell about 2.3% to $73.14 on Thursday in New York, giving the company a market capitalization of roughly $45 billion. Its shares have risen more than 9% since D.E Shaw's stake became public on Sept. 27. (Reporting by Rebecca Spalding and Timothy Aeppel in New York; Editing by Steve Orlofsky)

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