Emerson to Divest Connectivity Solutions Biz - Analyst Blog

Emerson Electric Co. EMR and Bel Fuse Inc. BELFA and have signed an agreement whereby Bel Fuse has accepted to buy Emerson's Connectivity Solutions (ECS) business in a roughly $98 million all-cash deal. Subject to regulatory approvals, the deal is expected to close in the second quarter of 2014 and be immediately accretive to Bel's earnings. 

Connectivity Solutions is part of Emerson's Network Power Business and primarily offers products to the wireless communications, telephone and data network, CATV, defense, security systems and health care industries apart from other industrial customers. These products have a broad range of radio frequency, microwave and fiber optic interconnect components and assemblies. In fiscal 2013, Emerson's Connectivity Solutions generated revenues of $83 million.  

The acquisition of Emerson's Connectivity Solutions is a strategic move by Bel Fuse as the business complements the existing line of business of the latter. Through this acquisition, Bel Fuse intends to expand into the aerospace and military markets, where long-term product reliability through highly engineered solutions is an important factor.

Further, the addition of Connectivity Solutions' Stratos brand to the Fibreco/Gigacom Interconnect products of Bel Fuse would give the latter an industry leading position in the Expanded Beam Fiber Optic market. Also, the ECS group will considerably expand Bel Fuse's copper-based product offering with its RF/Microwave connectors and assemblies.

For Emerson, this divestiture is a viable option as connectivity solutions are not aligned with its long-term goals and strategies. Further, Emerson intends to use the deal proceeds for share repurchases in fiscal 2014.

This is the third acquisition that Bel Fuse has pursued in the last one year. In Apr 2014, the company signed an agreement with ABB Ltd. ABB to acquire its Power Solutions business in an all cash deal worth $117 million. In Apr 2013, Bel Fuse acquired Transpower Magnetics business from TE Connectivity Ltd TEL in an all cash deal worth approximately $22.4 million. Bel Fuse expects these three acquisitions to increase its revenues by about 149% to $705 million from $283 million annually, from fiscal 2014 itself. 

Bel Fuse primarily engages in the design, manufacture and sale of products used in networking, telecommunications, high-speed data transmission, commercial aerospace, military, transportation, and consumer electronics. Emerson, on the other hand, is a global leader in technology and engineering, and provides innovative solutions for customers in industrial, commercial and consumer markets around the world.

Emerson currently has a Zacks Rank #3 (Hold).