Emerson Electric and Telefonaktiebolaget LM Ericsson made public today an agreement for Emerson to acquire Ericsson Energy Systems, a leading European power provider for the global telecommunications industry, for approximately $725 million. Ericsson Energy Systems, based in Stockholm, with annual revenues of about $500 million, designs, manufactures and markets power supplies and power systems for cellular base stations, telecom switching equipment and telecom facilities. In addition, Ericsson provides climate control and energy management systems as well as site monitoring services to maintain power at telecom facilities.
The Ericsson transaction, which is subject to customary conditions, is expected to close in the second quarter of Emerson's fiscal 2000. Emerson expects the acquisition to be immediately accretive to earnings per share, excluding goodwill amortization. On a reported basis, Emerson expects the transaction to be neutral to earnings per share in the first year and mildly accretive in the second year after closing. Rolf Pettersson, President of Ericsson Energy Systems, will continue to lead the business along with its existing management team. As part of the transaction, Emerson has signed a long-term supply contract with Ericsson and affiliated companies for the supply of power products and systems.
The strategic transaction will increase Emerson's presence in the fast-growing Internet and telecommunications equipment industries and marks another significant step in Emerson's strategy to reposition the company toward high-growth businesses through acquisitions and select divestitures. On a pro forma basis, Emerson's Electronics and Telecommunications business -- the Company's fastest growing segment with five-year growth rates of 13 percent organic and 21 percent with acquisitions -- will increase to approximately $3.4 billion in annual sales with the addition of Ericsson Energy Systems. The electronics group is expected to be Emerson's largest business in the near future.
Emerson Chairman and Chief Executive Officer Charles F. Knight said, "Today's acquisition is another major step in our drive to reposition Emerson in highly attractive growth markets, such as power electronics and telecommunications. The addition of Ericsson Energy Systems, with a strong presence throughout Europe, Latin America, and Asia, increases Emerson's global reach and uniquely positions the Company to take full advantage of the enormous worldwide demand in the Internet and telecommunications equipment industries. This transaction adds strong technology, complementary products and key new customers, such as Ericsson, Siemens, Telefonica, and Vodafone to Emerson's portfolio and broadens our customer base to now encompass virtually the entire telecommunications market. In addition, it expands our presence in key world markets and our role in wireless telecommunications power, and further positions Emerson as a one-stop solutions and service provider."
Knight continued, "Emerson's underlying growth rate will benefit from the addition of Ericsson Energy Systems, which has solid profitability, high returns on capital and a 15 percent pro forma annual sales growth rate over the past four years. Ericsson is an excellent strategic fit with Emerson's Astec and Liebert divisions. We expect to achieve synergies in a number of areas including purchasing and technology development, and leverage the worldwide manufacturing and direct sales support infrastructure our telecom businesses have in place. However, this transaction is about growth and we will not be taking a restructuring charge."
"We are very excited to be joining Emerson's Electronics and Telecommunications business, its fastest growing area with tremendous upside potential," Pettersson said. "By working together to leverage our technology, build on our proven track record of growth and serve a world-class customer list with a broader range of products and services, the combined company is positioned to become the global leader in telecom power."
Knight continued: "This transaction marks another step in Emerson's strategy to reposition the Company toward more growth-oriented businesses. In the past two months alone, we've invested $1.7 billion on acquisitions in our Electronics and Telecommunications business. Also during this time, we completed the divestiture of BI Technologies, a slower-growing passive components manufacturer. We are continuing to pursue similar transactions, and have preliminary agreements for another power electronics acquisition as well as slower-growth divestitures in our industrial and tools businesses. Through this combination of acquisitions and divestitures, Emerson is repositioning itself for improved top-line growth performance."
According to George W. Tamke, Emerson's vice chairman and co-chief executive officer, "Ericsson Energy Systems and Emerson have a seamless spectrum of OEM and network products that meets the demands and requirements of almost every major telecommunications customer in the world. This acquisition builds a powerful and potent force in this industry and enables us to globally expand Emerson Telecom Systems, our recently formed marketing and sales force organization, to generate accelerated growth. We will be able to jointly leverage our technological and marketing strengths with customers and suppliers to the benefit of our employees and shareholders. This acquisition is expanding the size and global reach of our telecom offerings, creating new opportunities to deliver to our customers power and environmental- related services historically performed by other parties."
Edited by Stephen Heiser