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Emerson Sells Majority Stake in Multibillion Climate Tech Unit

Emerson Electric Co. is a multinational corporation that manufactures products and provides engineering services for industrial, commercial, and consumer markets. Emerson started in St. Louis, Missouri in 1890, founded by Civil war Union veteran John Wesley Emerson. The company has grown from a regional manufacturer into a global tech company in the past century.

Emerson will be selling a majority stake of its climate technologies unit, which mostly consists of Copeland-branded HVAC compressors and other products, to Blackstone Inc in a $14 billion deal.

Blackstone is the world’s largest alternative asset manager with $951 billion in assets. These assets include real estate, public debt and equity, life sciences, non-investment grade credit, and investment vehicles focused on private equity, all on a global level.

Blackstone will gain a 55% stake in the unit and Emerson will have a 45% stake in the division’s equity and $2.25 billion. Investors would contribute $4.4 billion in equity towards this deal, followed by $5.5 billion of debt financing. In total, Emerson will receive $9.5 billion in cash before tax.

“This transaction enables Emerson to partially monetize our Climate Technologies business at an attractive valuation and provides significant upfront cash proceeds to invest in growth,” said Lal Karsanbhai, President and Chief Executive Officer of Emerson.

Climate Technologies in 2022 had $5.0 billion in net sales and pre-tax earnings of $1.0 billion. This deal values the unit at $14.0 billion, 12.7 times fiscal 2022, including standalone costs. A rare sight to other manufacturers and industrial companies in the HVAC business sector, which usually trades for 10.5 and 11.5 respectively.

Emerson will change its corporate and platform cost structure as part of the transaction. As well as selling ownership of its St, Louis, Missouri campus. Karsanbhai told the St. Louis Business Journal that Emerson will look for potential headquarters locations in St. Louis and elsewhere. However, if the deal is closed, it may give a devastating blow to the region that has considered the company a corporate citizen for more than a century.

The company will enter a three-year lease with an option to extend for two more years. Emerson has stated that it plans to use the earnings from the deal to invest in automation-related businesses and spend approximately $2 billion on share repurchases. The deal is expected to close in the first half of 2023 unanimously approved by Emerson’s Board of Directors.

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