Blackstone is buying 55% of the unit and valuing it at $14 billion. Earlier in the month Barron’s estimated the deal’s value at $5-10 billion, depending on the mix of assets sold, and how big a stake Blackstone planned to buy.
Emerson opened on Oct. 31 at $88/share, a market capitalization of $52.5 billion. Blackstone opened slightly down in a falling market, trading at about $93/share, a market cap of $112.5 billion.
What’s at Stake
Emerson today is mostly focused on commercial automation, with software and controls for fluids in factories. The Blackstone deal involves commercial and residential units in heating, air conditioning and refrigeration.
The deal will make Emerson a pure industrial supplier. It includes a five-year loan of $2.25 billion, at 5%, avoiding commercial banks in a rising interest rate environment. Emerson will be able to sell part of its stake in the new joint venture in two years and all of it in five years.
The deal is the largest private equity buyout in months, which should be positive for the market.
Blackstone has become one of the world’s largest owners of commercial property and, increasingly, an owner of rental housing.
Before rumors of the deal emerged early this month Emerson stock was weak, falling to a low of $73/share in late September. This came despite what analysts called a solid return on equity. Before the deal was announced, analysts at Tipranks rated it a moderate buy with a target 8% above its recent price.
EMR Stock: What Happens Next?
The deal lets Emerson pursue what I recently called the Intranet of Systems, with Internet controls over factory automation. It should also deliver cost visibility to Blackstone as it looks to manage its growing real estate portfolio.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.