CORPORATE
PARTICIPANTS
Lynne
Maxeiner
Emerson
Electric Co. - Director IR
David
Farr
Emerson
Electric Co. - Chairman, CEO, President
Walter
Galvin
Emerson
Electric Co. - SEVP, CFO
CONFERENCE
CALL PARTICIPANTS
Bob
Cornell
Barclays
Capital - Analyst
Steve
Tusa
JPMorgan
- Analyst
Deane
Dray
FBR
- Analyst
Christopher
Glynn
Oppenheimer
& Co. - Analyst
Michael
Schneider
Robert
W. Baird & Company, Inc. - Analyst
Judy
Delgado
Analyst
Martin
Sankey
Neuberger
Berman, LLC - Analyst
PRESENTATION
Ladies
and gentlemen, thank you for standing by. Welcome to the Emerson agreement to
acquire Avocent Corporation conference call. (Operator Instructions). This
conference is being recorded today, Tuesday, October 6, 2009.
Emerson's
commentary and responses to your questions may contain forward-looking
statements, including the Company's outlook for the remainder of the year.
Information on factors that could cause actual results to vary materially from
those discussed today is available in Emerson's most recent annual report on
Form 10-K as filed with the SEC.
In this
call, Emerson's management will discuss some non-GAAP measures in talking about
the Company's performance, and the reconciliation of those measures to the most
comparable GAAP measures is contained within a presentation that is posted in
the investor relations area of Emerson's website at
www.Emerson.com.
I would
now like to turn the conference over to our host, Ms. Lynne Maxeiner, Director
of Investor Relations. Please go ahead, ma'am.
Lynne
Maxeiner - Emerson Electric
Co. - Director IR
Thank
you, Douglas. I am joined today by David Farr, Chairman, Chief Executive
Officer, and President of Emerson; Walter Galvin, Senior Executive Vice
President and Chief Financial Officer; Craig Ashmore, Senior Vice President,
Planning and Development; and Ed Feeney, Executive Vice President and business
leader for Emerson Network Power.
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Today's
call will cover Emerson's announcement of its agreement to acquire Avocent. A
conference call slide presentation is available in the investor relations
section of Emerson's corporate website. A replay of this conference call and
slide presentation will be available on the website after the call for
approximately one week. I will now turn it over to Mr. David Farr.
David
Farr - Emerson Electric Co. -
Chairman, CEO, President
Thank you
very Lynne -- thank you, Lynne. Thanks, everybody, for joining us this
morning.
This is a
little bit different for me. What we have here is a presentation out there. I
want to flip through it.
The key
thing you need to know is that this is what I call a strategic marquee
acquisition for us within the network power space. It's one that we have been
working on for quite some time. It's a technology, you'll see, that is going to
allow us to create a lot stronger solutions presence and a stronger presence in
the data center infrastructure marketplace -- clearly strengthen us on a global
basis.
So what I
would like to do is go through the presentation. And the numbers on the
presentation, if you have a copy, are on the bottom right-hand side, and I'm
going to go to the second chart and -- which highlights the Emerson Network
Power profile.
In 2008,
the whole business of Emerson Network Power was $6.3 billion. The Emerson data
center sales by market in the business is $2.6 billion, and this is where
Avocent comes into play from a standpoint of the strategic fit. And I will talk
more about this but basically this is adding a very strategic component to where
we want to go and create more value, more solution capability for the data
center infrastructure and what we have to offer going forward here.
So let's
go to page three. Within the data center today, Emerson has a very strong
presence. We have, as I said, $2.6 billion and we cover the data center room, as
we've talked about in our analyst presentations.
We have
basically equipment throughout the whole data center from precision cooling to
dense cooling. We have surge suppression, uninterruptible power supplies. We
have power distribution units. We support the generators, the CAT generators or
other generators out there. We have the automatic switch and we actually have
enterprising monitoring system capabilities today.
Then,
within a rack, if you think about a rack within a data center, which is the box
and it looks usually black, we have cable managing, rack cooling. We have -- the
power supply is coming out of Astec. We actually make the rack, and we have
managed power strips and we have UPS and we have environmental sensors. So we
actually today are a major player in the data center today, relative to
equipment, both inside the rack and outside the rack.
And the
key areas that you're going to see going forward is how do you coordinate that
and how do you play all those together going into the future. That's what
Avocent is all about for us. It's a key, integral part of tying that technology
altogether.
As we go
forward to page four, as we look at the data center and the issues and the
emerging strategies today, you quickly see in the lower left-hand corner,
Emerson is involved in energy consumption of close to 60% of the data center,
from precision cooling to embedded power supplies and UPS. Clearly, when you
think about energy efficiency and you think about the needs of the data center
today, it's about energy, it's about availability, it's technology, and the
whole dynamic infrastructure management.
And this
is where Emerson is trying to focus, how we can create a value solution for our
customers using our technology-leading products today, be it a UPS, be it a
precision cooling unit or a power supply, and now, with Avocent, the KVM
solution capabilities there and software capabilities.
The data
center driven, and today as we look at it is off a global server marketplace,
and it's a growing marketplace and will continue to grow as we look at it. The
growth rate has been impacted by the virtual server activity going out there.
That will continue, but that will eventually run its course. And you will see a
pretty strong underlying growth for us.
The key
area for us basically is on the right-hand side. We want to continue to shift
the efficient hardware, both in servers and storage in the network area.
Powering cooling infrastructure. We want to be involved in the design data
center for efficiency. You know, managing those -- the room, configuring the
racks, trying to have people understand what's going on inside that data center.
What servers to come in and out.
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We want
to be able to manage power. We want to be able to manage air-conditioning. We
want the data centers to be able to control the infrastructure they have, which
we are a major supplier within that area. Where does the cooling need to go?
Where do we need to back it down? Where do they need UPSes? And so on and so
forth.
We want
to shift loads real time, use the most efficient hardware, use the most
efficient capabilities within that data center, and we want to be able to turn
off things and turn things back on. From the standpoint if you have excess power
going through it, or you have a unit that may be going bad, we want to be able
to manage this and this is what the Avocent strategy is all about, tying in very
closely to what we have to offer today.
And this
is going to allow us to get into a much larger market. As I see it, it's going
to allow us to expand our served market by at least $2 billion to $3 billion.
Avocent alone is a $1.0 billion-plus type of marketplace we're going into, and
then if you look at the solutions capabilities as we go down the market road in
the next five to 10 years, it's going to allow us to expand our solutions
capability into another -- add another $2 billion or $3 billion of capable sales
that we can go after in the marketplace, which is all very important to us
relative to our underlying growth rate and the future of Emerson.
You go
forward to page five. Obviously, we are in the data center today. We do surveys
constantly with our customers, and if you look at the progression over the last
couple of years, energy efficiency and heat density, these things -- and
monitoring and management, availability, all have become very, very major
players relative to what the customer needs.
And so,
energy efficiency has moved right up there to number two, right behind heat
density, and then you've got monitoring and management and you've got
availability. These are things that we are able to do, and now with the addition
of Avocent, we can do a lot more and we can bring a much stronger solution to
our customer over the next couple of years.
And this
is a key part, as you will quickly see. Their products are an integral part of
communication within a data center, which allows us to tie all our capabilities
together and then communicate up into the main systems and allow the data center
to do a lot more with the key data that we will supply to them.
Going
forward to page six, there are four areas. You've seen this chart before. We've
used this in talking about our Liebert and our whole network power
infrastructure strategy over the last couple of years.
There are
four key areas, capabilities, the needs from the customers -- performance
optimization, asset management, configuration, and real-time
monitoring.
And what
we've been about is trying to develop a capability, both from a product
standpoint, a solution standpoint, a software standpoint, and a service
standpoint, to serve these four key areas. And you will quickly see where our
products come into play today, and we are stronger clearly in some areas than
others, and we are -- with the addition of Avocent, it will allow us to
strengthen our capabilities across these four areas and allow us to create more
value for our customer and allow them to have more control and more management
of that infrastructure within the IT world, which is very important as we go
forward here in the next five to 10 years.
But
clearly, this has taken the game up a big notch as we look at our network power
infrastructure business today. Like we did in process as we developed the
capabilities with a next generation of systems and solutions in software, we
have changed the game from being just the best-in-class device company, be it a
UPS or precision cooling, to now offering a much more comprehensive service and
solution and software capability, and this whole infrastructure management in an
IT world. So that's what we're all about.
If you go
to the next page, page seven, you've seen this chart. I've showed this chart, I
think, the last two or three strategy sessions with our key investors in New
York or here in St. Louis. And what you see here now with the addition of
Avocent, it fits right next, adjacently, to where Emerson is with Liebert and
Aperture and Knurr.
It allows
us to have a lot more capability in that room and the racks and the IT devices,
and allows us to expand our solutions capability up into those four categories
we talked about -- real-time monitoring, configuration, asset management, or
performance optimization.
Fundamentally,
this allows us to develop what I consider a highly integrated solution for the
data center. It allows us to take our precision cooling, bring in the software
capability, which we will have to develop to tie all our capabilities together,
and then communicate, as I saw you later, up into the IT organization and give
those IT managers a lot more capability to manage the data center more
efficiently, more cost effectively, and to really know what's going on inside
that data center real-time.
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That's
what it's all about. Real time. Just like a process plan as I look at
it.
If you go
forward to page eight, you will see in a rack where Emerson is today. We have
precision cooling. We have what we call the drawer, the local access and
control. We have UPS. We have power strips. We make the rack.
And now
with the addition of Avocent, we have the leader in KVM switches, which is going
to be the key infrastructure control aspect to what we're trying to do here. It
is the control capability within that rack to what's going on inside that rack
with a technology we are going to develop here, and the software capabilities
we're going to develop here, to allow us to communicate amongst that rack and
then also outside that rack to other racks in the whole data center, and really
collect that information and take that information up into the IT network so
they can know what's going on inside that rack, across the racks, and really
create a viable information system capability for the operators inside that data
center.
If you go
forward to page nine, you will see today typically the KVM switch application --
it can control one to 64 servers. It communicates, it goes into the IT
administration, it goes across different sites, so not just one site. It can
communicate across different sites.
And
basically, it gives the IT administrator the -- remote visibility, access and
control of connected IT devices. Now what we want to do, given the fact that we
have a lot of other devices in this data center, just like a process plant, we
want to connect our UPS, we want to connect our precision cooling, we want to
connect to that backup power, we want to connect the power strips. We want to be
able to communicate across this whole data center and allow a more solution
capability for the operators of that data center.
Just like
we have here in St. Louis with our new data center, we want to be able to
control that data center, have that information, and know what's going on inside
that data center at any point in time, and make decisions real-time, which is
not something that really can do today across all the spectrum of products that
we have out there in that IT data center today.
If you go
to page 10, you see the profile of Avocent. It's a great company, located down
in Huntsville, Alabama. It's a very global company, you can see, with basically
a 50-50 split between international and the United States, and it's a company
historically that has grown.
Obviously
with 2009, it's had a very difficult year just like everybody else in the
marketplace from Emerson to anybody. I don't care where you are. A Cisco,
anybody. Everyone in this market space has had a very challenging
year.
It's a
profitable company. They have great gross profit and they have technology. The
key thing for us is they have technology within that data center that we'll be
able to utilize to create a bigger solution and to integrate with our
capabilities today we have in Liebert and our whole network power data center
infrastructure.
So from
our standpoint, this is a key aspect or a key milestone into creating a much
stronger package for our data center infrastructure. It's something that we've
been missing, and they really bring a capability to the marketplace and to
Emerson that will strengthen us as we go forward.
And as
you know, this is a long term, a very good growing, a very good, profitable
business for Emerson.
Going
forward, let's go to page 11. As I said, they are a profitable market leader in
a well-structured industry.
If you go
to page 12, you'll quickly see, on a global basis, their market today on a KVM
is $1.2 billion. They are a very strong presence around the world, both in the
Americas and in Europe and in Asia, just like our network power business today.
Our network power business today has 60% of their sales outside of the United
States, so I believe that we'll be able to strengthen the KVM and the Avocent
business both in Europe and in Asia because of the strong presence that we have
in those markets today.
We are
strong in Asia, in particular, with the whole network power aspects that we
have, and we're a very global player. I believe -- I can't remember, Lynne,
today, but we're probably close to 60%, 62% outside the United States today with
our network power infrastructure, which is very, very important to
us.
If you go
forward and look at page 13, as I've talked about, it significantly enhances our
Emerson's data center solutions. It brings a very comprehensive software
package.
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It's
going to allow much greater visibility inside the entire data center
infrastructure to better control the energy consumption, to manage the cost and
complexity of the operations. It's going to allow us to basically combine the
data center infrastructure and IT device knowledge, and allow us to do a lot
more unique solutions capability.
We are
going to have to jointly develop some software capability and embed it both
inside our products and also the Avocent products that allow us to do more
within that data center. We have unique solutions today, but really in the next
couple of years we're going to have to develop even more solution capability to
offer a stronger solutions aspect for the IT manager.
And the
discussion between the two companies has already started, and we're going to
have to launch that very quickly post the closing to develop, I think, a very
unique product offering in the software and the software management capability
and the solution capability, tying our two businesses together in a very uniform
capability which will strengthen the offering to the marketplace.
If you go
forward, basically what we're talking about here on page 14, if you look on the
infrastructure management you see Emerson down there. I mean, the transfer
switches, the UPS, the precision cooling, all the capabilities we have today in
the infrastructure management. If you go up one more notch, you'll look at the
KVM and network connection, and you'll see where the KVM sitting on top of that
rack, or on top of that server, is going to allow us to use that capability and
that connectivity into the network to bring the infrastructure management
knowledge that we have.
As I look
at that plant floor of the data center, what we're going to do is we're going to
connect and collect and monitor and send that information up into the operating
information for the ITSM or optimization at the very top, and allow that data
center organization, the IT service management group, the ITSM, to manage the
data that we're going to supply them.
We're
going to pass this information up. We are not going to be at the top. We're
going to pass this information up and allow this information to be used to
manage that data center much more efficiently from an energy standpoint. Which
racks are going to be coming on? Which racks are going to be going off? Where do
you have problems with your servers? Where do you have problems with your UPSes?
And that's what this is all about.
It's
going to be the room and rack management capabilities, and we are going to
create that unique capability at the marketplace to give them that performance
optimization, asset management, the configuration, and the real-time monitoring.
That's what this game is about, creating the best-in-class capabilities, the
products we have out there, both with Emerson and then with Avocent, tying
together with a whole infrastructure management capability and a solutions and a
software which really creates value for our customer, and it solidifies our
presence in this very, very important global marketplace which we serve, as I
said, over $2.5 billion today.
If you go
forward and you look at the four capabilities and what Avocent does with
Emerson, you see the combination of Emerson and Avocent really gives us a lot
stronger capabilities in the performance optimization, asset management, and the
configuration, and real-time monitoring. Some cases, we -- unique combination
right now, we'll have a very strong presence. That's what the solid green dots
are.
The
yellow ones, we are going to have to work and we're going to have to create a
lot more capability, both from a software standpoint and the solutions
capability standpoint. But these things can be done over the next couple of
years, and you'll see a very strong Emerson/Avocent presence in these four key
areas.
This is
where the data centers want to go. This is what they need. They need to optimize
and they need that asset management, and they need to make sure they are using
their energy efficiency the best they can in today's world as you go forward.
Energy efficiency is on everyone's mind, as we see, relative to what's going
on.
If you go
forward to page 16, one of the key things that we've looked at and you look at
trying to quantify, as I said earlier, I believe that you have the addition of
the current KVM marketplace, which is over $1 billion globally. If you look at
what goes on inside the data center today and the opportunity that we can bring
from the spend and how we can save them money, we believe that we can create a
$1 billion-plus additional served market in the next couple of
years.
I
personally think it's greater than $1 billion. I think it would be -- it could
go $1 billion to $2 billion.
So what
we're going to do is we're going to expand the capabilities that we have today
in those data centers, and there is a lot of data centers out there. You're
looking at, on the left-hand side, 10,000 -- greater than 10,000 square feet --
35,000 greater than 5,000. And 140,000 worldwide greater than
1,000.
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This is
what we're going to take our solution. This is the market we're going to serve.
It's a lot of capability -- over 180,000 data centers out there. With our unique
solution and product capability, it will allow us to expand the market. That's
what this is all about.
We serve
this market today, but what we want to do is expand it and take more of a
solution capability in, and allow us to grow that $1 billion to $2 billion to $3
billion served market space for us, allow us to penetrate with what I consider a
very profitable business aspect that we offer today at network power and also
with the Avocent addition.
If you
look at the Avocent -- the customer presence and their channel presence, it's
going to add to what we have today. If you go forward two charts to chart 18, we
are very strong in many of these global customers, these marquee customers, be
it HP, be it Ericsson, or IBM or Nortel or Dell.
But with
the addition of Avocent, they are very, very strong in HP, IBM, and Dell. So
it's going to solidify our marquee account aspect on a global basis, which is
very important when it comes to having that credibility on a global reach to
serve these very large global marquee customers. And with the addition of
Avocent, and the combination of Avocent and Emerson, it'll really strengthen our
presence in these key marquees, and this allows us to do more for these
customers and give our customers a lot more confidence that we have the
solutions and capability to support them as they move forward and go on a global
basis.
Going
forward to page 19, let's talk about the acquisition. This is, what I'd say, a
marquee acquisition for us, as I refer to it. This is a very strategic
acquisition for us. This is different than a typical, what I would say, just a
pure bolt-on acquisition. It's going to give us -- allow us to expand our market
and allow us to do a lot more for our customers.
We expect
this transaction to close sometime around January 1. You have the normal,
obviously, regulatory approvals around the world. How long it takes, we're not
quite sure. But it's going to be sometime in the middle of December, towards the
end of December, early January.
And
clearly, if you look at it, I would rather not have a stub couple of weeks in
here, but I would -- from my perspective, January 1 would be a very nice
closing. But we will close when it's appropriate relative to approval from the
governments around the world.
We will
integrate network -- Avocent within the network power business reporting into Ed
Feeney. He is on the phone right now. And create over the next nine to 12 months
a relevant Liebert and product solutions capability within Avocent. There's a
lot of work to do here.
But this
is clearly about creating more technology. It's about creating more of a
solution capability. This is not necessarily about what I would call a cost of
integration or a synergy case standpoint. This is about growth and improving our
global capabilities from a standpoint of a technology and product and solutions
for our customer, allowing us to grow more on a global basis.
Both
businesses are already very profitable today. I think we can do more, clearly.
But this is not about synergies from a cost standpoint. It's about synergies
from a growth standpoint.
If you
look at the nine months, assuming that -- our fiscal year, we are now into a new
fiscal year, 2010. We're glad to get 2009 behind us as we move into 2010, as I
told the Board last night.
We will
probably have nine months of Avocent, around $400 million of sales. That's an
approximate number. We are being conservative. It's hard to say right now
exactly once they've closed and what's going to happen, but we're being
conservative. It's around $400 million of sales for Emerson.
If you
look at the impact for us next year, it will be significant. We have the issue.
It's going to be $0.10 -- is our current conservative estimate of this. It's
included in the inventory write-offs, amortization of intangibles, acquisition
costs which you have to write off, and historical stock awards we'll have to
expense.
The key
issue for us is that we made the decision that right now we're going to write
off the amortization of the intangibles over six years. That's a very fast time
period. This is a technology acquisition. I feel much more comfortable getting
that behind us over the next five to six years to make sure that we deal with
this from the standpoint of not having problems down the road.
It's
around $350 million as we look at it right now. Running that off over six years
is a very large, non-cash P&L hit to us. But I feel very conservatively that
we should do that on a quicker basis, not spreading that over 10 or 12 years,
which would be something you could do, but I
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think
that would be wrong to do relative to what we want to do with this technology
and this innovation that we are going to go forward here. You want to do it
quicker, not longer, in my case.
It will
be cash flow accretive from an EPS standpoint in 2011. Again, as we get our
hands around the acquisition and as we get into -- have the chance to
incorporate it, we'll give you tighter numbers as we get into that into our
second fiscal quarter, but right now, this is what we -- Walter, Craig, and Ed
and I have been looking at this for the last couple of weeks from a conservative
standpoint.
We think
this is the way to look at it right now. It will hit us $0.10 next year, but
it's going to really help us from a growth standpoint, a technology standpoint
on a global basis, and clearly we'll get better as we go forward here in the
coming years.
Number
one issue, as I talked about, is the future development of the software solution
to open up an expanded market capabilities for key computer OEMs. Clearly,
trying to be able to take our best-in-class assets and infrastructure assets
inside the data center, the Avocent best-in-class assets in that data center,
and have them all tied together and all communicate together is very, very
important.
This
opens up a great solution capability both for our customers and our customers'
customers. It allows us to do a lot more for them today and really gives us a
lot more of a growth platform as we go forward, as we see the marketplace
changing as they focus on optimization, as they focus on energy, as they focus
on getting the most out of their assets, which many of those assets are our
assets in that data center.
So, as I
wrap this up, this is a very strategic acquisition for us. It's one that I've
been talking about, not by name, but as you've heard me talk about over the
years, talking about that what I call strategic marquee adjacent space type
acquisition, allowing to solidify and strengthen one of our core businesses, the
network power business. In particular, the network power infrastructure for the
data center, which is over $2.5 billion today and doing extremely well around
the world.
So, I'm
welcoming Avocent. It's a great organization. A lot of good people. A lot of
great technology. And I think we can strengthen them on a global basis when I
look at where we are located today and how strong we are internationally, and I
look at what they offer us and what we can do together, so I'm very excited
about the capabilities that Avocent is bringing to this party and I'm very
excited about the whole solutions aspect of bringing what we have of Liebert and
our network power infrastructure today and bringing Avocent to
that.
So with
that, I would like to open the floor. Clearly, given it's a public company and
we have obviously regulatory issues going forward in this, I'm not going to get
into a lot of specifics here, more than I'm talking about here, from a numbers
standpoint.
But I
thought it was very important for our shareholders and our analysts to have an
understanding what's behind this move this morning. Why we made a $1.2 billion
acquisition in this space, why now, and why this company.
I think
you could see with this information we put out there, it's very strategic, it
fits as well, and I think we can make a very strong case going forward that it
will create value for our shareholders over the long term. With that, I'll open
the floor up for questions.
QUESTION
AND ANSWER
(Operator
Instructions). Bob Cornell, Barclays Capital.
Bob
Cornell - Barclays Capital -
Analyst
You know,
yes, when Emerson is marquee, we pay attention. The -- but you talked about some
of the things that need to be developed, right? It sounds like Avocent has been
headed in a certain direction, and in order to accommodate the solutions
capability you're talking about, you need to change directions a little bit,
coordinate, and head in the -- . Maybe if you could just flesh out what you
really meant there in terms of developing the capability to do the solutions
you're talking about.
David
Farr - Emerson Electric Co. -
Chairman, CEO, President
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I think
the key issue is Avocent was moving down the line of creating that communication
capability. They have products coming out right now.
But what
I want to be able to do is tie the whole infrastructure together. And so, given
the fact that we have a strong presence in that data center today, what I want
to be able to do is broaden their communication capability across a UPS or
precision cooling or the switches, and allow them to do a lot more within the
data center today, which they were not going to totally get access to. They
could get part of it; it was not very efficient.
You think
about it, Bob, you know the process control plant. Now, with a -- just think
about a Delta V or an Ovation having total -- totally integrated solution
capability within transmitter or control valve. That's what we're talking about
here. Creating a very integrated capability to communicate amongst all of these
products.
So we're
going to have to expand the development effort within Avocent, and also we have
with our own company called Aperture, we were doing the same thing. So now we
have the two together and we can really expand that offering. That's what that's
all about.
And it
will take us a couple of years to do that. We have the capability today, but we
want to take it to the next level just like the new Delta V that we brought out,
announced last week.
Bob
Cornell - Barclays Capital -
Analyst
The --
you gave us the dilution math and talked about accelerated amortization of
intangibles. What sort of financing costs are you assuming as part of that
dilution math? In other words, are we assuming just use the cash or are you
going to -- are you assuming some sort of cost of debt in that
math?
Walter
Galvin - Emerson Electric Co.
- SEVP, CFO
Yes, we
are using a blended capital structure, so you can say it probably will round to
somewhere between 4.5% and 5%, some commercial paper, some long-term debt,
because clearly the nature of this is you'd have a chunk of long-term debt as
well. We tend to be conservative, as you know, Bob.
Bob
Cornell - Barclays Capital -
Analyst
Yes, I
do.
David
Farr - Emerson Electric Co. -
Chairman, CEO, President
We're not
-- don't assume a commercial rate in this debt.
Walter
Galvin - Emerson Electric Co.
- SEVP, CFO
Yes.
David Farr -
Emerson Electric Co. - Chairman, CEO, President
That's
not something -- I think that's totally inappropriate on a long-term
investment.
Bob Cornell -
Barclays Capital - Analyst
Okay, I
will pass the baton. Thanks, you guys. (multiple speakers) Sounds good to
me.
Final Transcript
Oct.
06. 2009 / 11:00AM ET, EMR - Emerson Electric to Acquire Avocent
Corporation
|
Steve
Tusa, JPMorgan.
David Farr -
Emerson Electric Co. - Chairman, CEO, President
There is
a precision cooling aspect in here, in case you want to talk about
HVAC.
Steve Tusa -
JPMorgan - Analyst
I always
like to talk of HVAC, but let's stick to the financials for this one, maybe. So
what is the EBIT number? I mean, I guess I could back into it. The $0.10 was
something a little bit less than what we would have initially expected, so maybe
you could just walk us from EBIT down to that $0.10?
David Farr -
Emerson Electric Co. - Chairman, CEO, President
Steve,
I'm not going to give you that level of detail right now. We will do that in
February.
I'm not
going to back in -- I mean, this is a public company. They will be announcing
their quarter. You'll be able to get their information. I mean, at this point in
time, I don't want to get into any more detail. I mean, I've given you the EPS
dilution.
And as
I've said, when we come back out and announce our earnings in February, this
deal will be closed. We can give you a little bit more detail around that, even
when we have our New York session. I think you've got enough right now you can
work around those numbers, and I appreciate that.
Steve Tusa -
JPMorgan - Analyst
Okay. So,
from a -- but from a, like, I guess a return-on-capital perspective, what's the
-- what's kind of the hurdle rate you are thinking here? Three years
out?
David Farr -
Emerson Electric Co. - Chairman, CEO, President
It's
going to be a little longer. When I talk about our strategic marquee deals, it
takes us typically a little bit -- more like a five, six, seven type of years.
This is not a -- I mean, if you think about a little bolt-on acquisition, I can
do that in a one- or a two-year, three-year time period. This is a little bit
different situation here.
Steve Tusa -
JPMorgan - Analyst
Okay, and
what historically on those bolt-ons do you usually target, just for
background?
David Farr -
Emerson Electric Co. - Chairman, CEO, President
If you
look at our return on total capital of the years we're talking, typically
anywhere from 13% to 18% to 20%. This one is going to be more down in the lower
double-digit level.
Steve Tusa -
JPMorgan - Analyst
Okay, and
I noticed that APCC is a customer of theirs, I think.
Unidentified
Company Representative
Final Transcript
Oct.
06. 2009 / 11:00AM ET, EMR - Emerson Electric to Acquire Avocent
Corporation
|
Yes, they
are. (multiple speakers)
Steve Tusa -
JPMorgan - Analyst
Are they
-- I know they're not a top 10, but are they a sizable customer and are you
worried about any kind of loss of business there, given that you guys are big
competitors?
David Farr -
Emerson Electric Co. - Chairman, CEO, President
Oh,
they're a competitor of ours?
Steve Tusa -
JPMorgan - Analyst
I think
so.
David Farr -
Emerson Electric Co. - Chairman, CEO, President
I can't
-- I forgot about that. It's less than $5 million, Steve.
Steve Tusa -
JPMorgan - Analyst
And then,
one last question, I guess you guys have no obligation to update your guidance
at this stage of the game, right? Even though the quarter's
closed?