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D. E. Shaw Group Urges Emerson To Split, Cut Costs

Hedge fund DE Shaw has called for changes at US automation and building equipment group Emerson Electric (EMR).

In a letter sent Emerson's board, Shaw has asked the board to consider splitting the company into two separate companies, reduce its operating costs and to improve its corporate governance structure.

DE Shaw said it believes Emerson should be split into a pure play industrial automation company and a climate technology-focused company.

"Emerson can execute the separation through a tax-free spinoff of Climate Co. to shareholders with limited dis-synergies. Since Emerson currently trades at a discount to its lowest multiple segment, we believe a separation alone would generate at least 20% upside to the current share price based on achieving peer valuation multiples for each segment," Shaw said in the letter.

Shaw said it estimates that Emerson can save over $1 billion annually, mostly within Emerson's Automation Solutions segment and Emerson's corporate center through cost rationalization and efficiencies.

The letter also asked the board to immediately move to annually elected directors to ensure accountability and alignment with the interests of shareholders. Emerson should also take immediate steps to better align executive compensation with shareholder returns by adding a return-focused metric to its long-term incentive compensation plan.

"Emerson maintains an open dialogue with all shareholders and welcomes their input on potential opportunities to enhance shareholder value," said Clemens Boersig, Lead Independent Director, Emerson. "We will carefully evaluate D.E. Shaw's proposals as we continue to assess value-creation opportunities."

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