) will become the sole owner of EGS Electrical Group as it has
agreed to acquire the 44.5% minority stake of
). Valued at $571 million, the deal is expected to close in the
first quarter of 2014, subject to regulatory approvals. EGS
Electrical Group is a joint venture between SPX Corporation and
Emerson, where the latter had a majority stake.
Emerson intends to merge the EGS sales in its Industrial
automation segment. Post integration, SPX's controlling interest
in EGS will cease to exist. Emerson expects this transaction to
be accretive to its fiscal 2014 earnings.
EGS Electrical Group operates in the niche market and is a
leading manufacturer of electrical products for commercial,
industrial, hazardous and adverse environments. Its operations
are primarily concentrated in North America and its major source
of revenue is from the oil and gas and chemical markets. Both
sectors together generated about 50% of total revenue for the
The deal is a win-win situation for both the companies as
after acquiring a 100% ownership, Emerson will be able to further
strengthen its position in the oil and gas and chemical market
opportunities. In the energy industry, these are the two sectors
which are witnessing increasing demand.
On the other hand, SPX Corporation, through this divestiture,
will become more focused on its flow end markets. The divestiture
is expected to generate an after-tax gain of approximately $300
million, or $6.50 per share, in SPX Corporation's first quarter
results. Through the proceeds of this sale and the available cash
on hand, SPX Corporation intends to allocate approximately $500
million for share repurchases and about $300 million for reducing
Emerson believes that the deal comes at an opportune time, as
the company is witnessing emerging opportunities in its
Industrial Automation and Process Management segments' end
markets. Therefore, the company will be able to fully benefit
from the synergies arising out of this acquisition.
Emerson in the recent past has been restructuring its
portfolio for the past three months primarily to focus on the
growing oil and gas and chemical markets. In Sep 2013, Emerson
had acquired India-based private company Virgo Valves to
strengthen its Process Management division's presence in the high
potential oil & gas industry.
Following this, in Oct 2013, Emerson acquired Enardo LLC to
expand its Process Management division's storage tank solutions
for oil & gas, and petrochemical and chemical industries.
With complementing business line, geographic synergies and
perfect alignment of business strategy, these acquisitions are
expected to boost Emerson's Process Management revenues probably
within the first year itself.
This apart, in Nov 2013, Emerson had divested 51% stake in its
embedded computing and power business to focus more on its core
Emerson currently holds a Zacks Rank #3 (Hold). Some
better-ranked stocks in the oil & gas and utilities sector
AO Smith Corp
Alamo Group, Inc
). AO Smith Corp has a Zacks Rank #1 (Strong Buy), while Rexnord
Corp. and Alamo Group both carry a Zacks Rank #2 (Buy).
ALAMO GROUP INC (ALG): Free Stock Analysis
SMITH (AO) CORP (AOS): Free Stock Analysis
EMERSON ELEC CO (EMR): Free Stock Analysis
REXNORD CORP (RXN): Free Stock Analysis
SPX CORP (SPW): Free Stock Analysis Report
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