SC TO-C: Written communication relating to an issuer or third party tender offer
Published on October 6, 2009
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
________________
SCHEDULE TO
Tender
Offer Statement under Section 14(d)(1) or 13(e)(1) of
the
Securities Exchange Act of 1934
AVOCENT
CORPORATION
(Name
of Subject Company)
GLOBE
ACQUISITION CORPORATION
EMERSON
ELECTRIC CO.
(Names
of Filing Persons — Offeror)
Common
Stock, Par Value $0. 001 Per Share
(Title
of Class of Securities)
________________
053893103
(Cusip
Number of Class of Securities)
Frank
Steeves
Senior
Vice President, General Counsel and Secretary
Emerson
Electric Co.
8000
West Florissant Avenue
St.
Louis, Missouri
(314)
553-2000
(Name, Address and Telephone Number
of Person Authorized to Receive Notices
and
Communications on Behalf of Filing Persons)
Copies
to:
Phillip
R. Mills, Esq.
Marc
O. Williams, Esq.
Davis
Polk & Wardwell LLP
450
Lexington Avenue
New
York, New York 10017
Telephone:
(212) 450-4000
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R
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Check the box if the filing
relates solely to preliminary communications made before the commencement
of a tender offer.
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Check the
appropriate boxes below to designate any transactions to which the statement
relates:
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R
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third-party tender offer subject
to Rule 14d-1.
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£
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issuer tender offer subject to
Rule 13e-4.
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£
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going-private transaction subject
to Rule 13e-3.
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£
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amendment to Schedule 13D
under Rule 13d-2.
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Check the following box if the filing
is a final amendment reporting the results of the tender
offer. £
This
Schedule TO filing consists of the following documents relating to the proposed
acquisition of Avocent Corporation (“Avocent”) by Emerson Electric Co.
(“Emerson”) pursuant to the terms of an Agreement and Plan of Merger dated as of
October 5, 2009 by and among Avocent, Emerson and Globe Acquisition Corporation,
a wholly-owned subsidiary of Emerson: (i) a Joint Press Release of Avocent
and Emerson dated October 6, 2009; (ii) the transcript of an investor call held
by Emerson on October 6, 2009 to discuss the acquisition of Avocent by Emerson;
and (iii) a presentation used in such investor call.
 |
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Contact:
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Mark
Polzin
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Contact:
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Bob
Jackson
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Fleishman-Hillard (for
Emerson)
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Avocent
Corporation
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Phone:
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(314)
982-1758
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Director of
Investor Relations
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e-mail:
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mark.polzin@fleishman.com
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Phone:
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(256)
261-6482
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e-mail:
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Bob.Jackson@avocent.com
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EMERSON
TO ACQUIRE AVOCENT CORPORATION
Agreement
Broadens Network Power’s Data Center Management Capabilities
ST. LOUIS, MO, and HUNTSVILLE, AL; OCTOBER 6,
2009 – Emerson (NYSE: EMR) and Avocent Corporation (NASDAQ: AVCT) today announced they have reached agreement for Emerson
to acquire Avocent, a transaction that will further Emerson’s ability to deliver
total infrastructure
management
solutions to its
data center customers around the world. The Avocent Board of Directors unanimously endorsed the terms of an all-cash tender offer of $25 per share, or approximately $1.2
billion. The purchase is expected to close around
January 1, 2010, pending
customary regulatory approvals and acceptance of the offer by Avocent stockholders holding a majority of Avocent
shares.
Headquartered in Huntsville, Alabama, Avocent recorded sales in 2008 of
$657 million. With global
manufacturing, research and development and sales operations, nearly 50 percent
of Avocent’s
2008 revenues came from
outside the United
States.
-more-
Avocent – page 2
The agreement extends the
integrated solutions Emerson provides to data center managers and creates
significant opportunities for growth. Avocent blends hardware,
software and embedded technologies in a unified platform that simplifies
monitoring, managing and problem solving in any size data center.
Avocent’s IT
infrastructure management technology is recognized as a leader in managing IT
device operating and performance information. These configuration and
monitoring technologies complement Emerson Network Power’s power systems, energy
management and precision cooling solutions. Emerson’s data
center-related revenues were approximately $2.6 billion in fiscal
2008.
“Combining Avocent’s technologies,
relationships and installed base with Emerson’s power and cooling presence
allows us to offer a more compelling solution to our data center customers’ most
pressing challenge -- energy efficiency,” said David N. Farr, Emerson
chairman, CEO and president. “It furthers our customers’ ability to
better manage reliability, availability and lifecycle costs through a simple yet
comprehensive view of the complete data center physical
infrastructure.”
-more-
Avocent – page 3
Mike Borman, Avocent’s CEO, added: “Augmenting Avocent’s ability to access and control the
physical aspects of network devices and servers with information and knowledge
of the broader power and cooling infrastructure forms a powerful combination
missing today from the toolset available to data center
managers.”
Emerson will host a brief presentation
to discuss this transaction today at 10 a.m. Central/11 a.m. Eastern. A
webcast of the presentation will be available in the Investor Relations area of
Emerson’s Web site at www.Emerson.com/financial at the time of the event, and an
archive replay will be available for approximately one week.
About AVOCENT Corp.
Avocent delivers IT
operations management solutions that reduce operating costs, simplify management
and increase the availability of critical IT environments 24/7 via integrated,
centralized software. Additional information is available at www.avocent.com.
About
Emerson Network Power
Emerson Network
Power, a business of Emerson (NYSE:EMR), is the global leader in enabling
Business- Critical Continuity™ from grid to chip for telecommunication networks,
datacenters, health care and industrial facilities. Emerson Network Power
provides innovative solutions and expertise in areas including AC and DC power
and precision cooling systems, embedded computing and power, integrated racks
and enclosures, power switching and controls, monitoring, and connectivity. All
solutions are supported globally by local Emerson Network Power service
technicians. Liebert power, precision cooling and monitoring products and
services from Emerson Network Power improve the utilization and management of
datacenter and network technologies by increasing IT system availability,
flexibility and efficiency. For more information, visit: www.EmersonNetworkPower.com.
About
Emerson
Emerson (NYSE: EMR), based in St.
Louis, Missouri (USA), is a global leader in bringing technology and engineering
together to provide innovative solutions to customers through its network power,
process management, industrial automation, climate technologies, and appliance
and tools businesses. Sales in fiscal 2008 were $24.8 billion, and Emerson is
ranked 94th on the Fortune 500 list of America’s largest companies.
For more information, visit www.Emerson.com.
-more-
Avocent – page 4
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
THIS PRESS RELEASE
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
MAY BE IDENTIFIED BY WORDS SUCH AS “BELIEVES”, “EXPECTS”, “ANTICIPATES”,
“PROJECTS”, “INTENDS”, “SHOULD”, “SEEKS”, “ESTIMATES”, “FUTURE” OR SIMILAR
EXPRESSIONS OR BY DISCUSSION OF, AMONG OTHER THINGS, STRATEGY, GOALS, PLANS OR
INTENTIONS. VARIOUS FACTORS MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY IN THE
FUTURE FROM THOSE REFLECTED IN FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
PRESS RELEASE, AMONG OTHERS: (1) ECONOMIC AND CURRENCY CONDITIONS;
(2) MARKET DEMAND; (3) PRICING; (4) COMPETITIVE AND TECHNOLOGICAL
FACTORS; (5) THE RISK THAT THE TRANSACTION MAY NOT BE CONSUMMATED; (6) THE
RISK THAT A REGULATORY APPROVAL THAT MAY BE REQUIRED FOR THE TRANSACTION IS NOT
OBTAINED OR IS OBTAINED SUBJECT TO CONDITIONS THAT ARE NOT ANTICIPATED; (7) THE
RISK THAT AVOCENT WILL NOT BE INTEGRATED SUCCESSFULLY INTO EMERSON; AND (8) THE
RISK THAT REVENUE OPPORTUNITIES, COST SAVINGS AND OTHER ANTICIPATED SYNERGIES
FROM THE TRANSACTION MAY NOT BE FULLY REALIZED OR MAY TAKE LONGER TO REALIZE
THAN EXPECTED.
ADDITIONAL
INFORMATION AND WHERE TO FIND IT
THIS PRESS RELEASE
IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO PURCHASE
OR A SOLICITATION OF AN OFFER TO SELL AVOCENT COMMON STOCK. THE SOLICITATION AND
OFFER TO BUY AVOCENT COMMON STOCK WILL ONLY BE MADE PURSUANT TO A TENDER OFFER
STATEMENT ON SCHEDULE TO (INCLUDING THE OFFER TO PURCHASE AND RELATED MATERIALS)
THAT GLOBE ACQUISITION CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF EMERSON,
INTENDS TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC). IN ADDITION,
AVOCENT WILL FILE WITH THE SEC A SOLICITATION/RECOMMENDATION STATEMENT ON
SCHEDULE 14D-9 WITH RESPECT TO THE TENDER OFFER. AVOCENT’S INVESTORS AND
SECURITY HOLDERS ARE URGED TO READ THESE MATERIALS, ANY AMENDMENTS TO THESE
MATERIALS, AND ANY OTHER DOCUMENTS RELATING TO THE TENDER OFFER THAT ARE FILED
WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE PRIOR TO
MAKING ANY DECISIONS WITH RESPECT TO THE OFFER SINCE THEY WILL CONTAIN IMPORTANT
INFORMATION, INCLUDING THE TERMS AND CONDITIONS OF THE OFFER. INVESTORS AND
SECURITY HOLDERS MAY OBTAIN A FREE COPY OF THESE MATERIALS (WHEN AVAILABLE) AND
OTHER DOCUMENTS FILED BY EMERSON AND AVOCENT WITH THE SEC AT THE WEBSITE
MAINTAINED BY THE SEC AT WWW.SEC.GOV. THE OFFER TO PURCHASE AND RELATED
MATERIALS MAY ALSO BE OBTAINED (WHEN AVAILABLE) FOR FREE BY CONTACTING EMERSON
AT 8000 WEST FLORISSANT AVENUE, ST. LOUIS, MISSOURI 63136, (314)
553-2197. THE SCHEDULE 14D-9 MAY ALSO BE OBTAINED (WHEN AVAILABLE)
FOR FREE BY CONTACTING AVOCENT AT 4991 CORPORATE DR., HUNTSVILLE, ALABAMA 35805,
(256) 261-6482.
###
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Final
Transcript
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Conference Call
Transcript
EMR - Emerson Electric to Acquire
Avocent Corporation
Event Date/Time: Oct. 06. 2009 /
11:00AM ET
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1
Final Transcript
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Oct.
06. 2009 / 11:00AM ET, EMR - Emerson Electric to Acquire Avocent
Corporation
|
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
Operator
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.
2
Final Transcript
|
Oct.
06. 2009 / 11:00AM ET, EMR - Emerson Electric to Acquire Avocent
Corporation
|
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.
3
Final Transcript
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Oct.
06. 2009 / 11:00AM ET, EMR - Emerson Electric to Acquire Avocent
Corporation
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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.
4
Final Transcript
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Oct.
06. 2009 / 11:00AM ET, EMR - Emerson Electric to Acquire Avocent
Corporation
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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.
5
Final Transcript
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Oct.
06. 2009 / 11:00AM ET, EMR - Emerson Electric to Acquire Avocent
Corporation
|
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
(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.
Operator
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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
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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?
David Farr -
Emerson Electric Co. - Chairman, CEO, President
No
comment.
Steve Tusa -
JPMorgan - Analyst
Okay. Had
to try. Thanks.
David Farr - Emerson Electric Co. - Chairman, CEO, President
Good try.
Nice backing. You're a damned troublemaker, Steve. Hello, Deane.
Operator
Deane
Dray, FBR.
Deane Dray - FBR - Analyst
Good
morning, everyone. Dave, could you describe or give us some color on Avocent's
market share, maybe by geography. You know, when I first looked at the deal, I
was expecting you to say that this is more of a geographic play, where you could
take Avocent into markets outside the U.S.. But it looks like they've already
made some progress there. So, what's their market share by geography and what's
really the opportunity?
David Farr - Emerson Electric Co. - Chairman, CEO, President
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If you
look at -- I did give -- if you look at the KVM, which is the key part of their
company, we gave you the specific market share.
In the
Americas, they are 45% -- 45%, and Europe, they are probably 42%. I'm looking
off this chart here. And in Asia, they are probably around 50%.
I
personally believe that if I look at the capabilities, I think that we could do
more both in Europe and Asia-Pacific with our strong global infrastructure. The
United States, we both have a very good presence today.
I don't
see -- that's not -- this is a game about expanding the market more than trying
to bolt on anything. Let's say, okay, let's expressly change the market share or
the cost structure. So I personally believe that the game for us is expand that
market, and then Europe and Asia are two markets that I think, and Latin
America, that I think that we can expand our presence quite
significantly.
Deane Dray - FBR - Analyst
And then,
just to cite expectations, is Emerson's shopping cart full at this point? You're
still in the acquisition hunt? Was it the marquee deal? What's the
outlook?
David Farr - Emerson Electric Co. - Chairman, CEO, President
We are
still in the acquisition hunt. We got a balance sheet that can deal with this
and we generate, as you know, we generate a lot of cash flow. We had a good year
in 2008, in 2009. So this is not the end of the game for us.
I think
you're going to continue to see us do acquisition. We closed close to $1 billion
in 2000 -- fiscal 2009. Our goal right now, as we showed the finance committee,
is that we'll be somewhere in the $1.5 billion to $2 billion range for 2009. And
if I can do better, I will do better.
Operator
Christopher
Glynn, Oppenheimer & Co..
Christopher Glynn - Oppenheimer & Co. - Analyst
Just
looking for some commentary on the key competitive dynamics in your legacy UPS
and cooling, and the opportunity to drive some incremental share there with the
complete offering. How are you looking at that?
David Farr - Emerson Electric Co. - Chairman, CEO, President
If you
look at Avocent globally, [besides] the quick remark I made with Steve Tusa
about the APC Schneider. APC Schneider globally are number one in the
marketplace.
We are
number two globally in the marketplace, and I fundamentally believe that this
will allow us to offer a better package in certain populations, to be able to
gain some share for the whole product offering, be it precision cooling, be it
the UPS line, and our couple of other areas.
So I look
at this as a positive from the standpoint of the next five to seven years, that
we could gain some additional market share in our core -- what we call the
network power infrastructure business today. That is something I look at this
from a growth standpoint. If I expand this marketplace, then we can do a lot
more.
Operator
Michael
Schneider, Robert W. Baird & Company, Inc..
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Michael Schneider - Robert W. Baird & Company, Inc. - Analyst
I guess
just one strategic question. If you look at the slide, and it shows how you lie
left of the technology companies and Avocent lies in the center? Is there an
obsolescence or integration risk here that servers ultimately incorporate this
KVM technology, and you actually now are competing with your IT
customers?
David Farr - Emerson Electric Co. - Chairman, CEO, President
They do
already, Mike. If you look into this today, we supply all the server guys and
some of them will embed it -- they embed the KVM right in the server. Some of
them do not.
So we
already have today -- we are the leader of both of them, from an embedded
standpoint and a standalone standpoint. Or not we, Avocent is, I'm sorry.
Avocent is.
So this
is an issue they have been working with and they are very good at this. That's
why the HP, IBM, and Dell relationships are so strong. Because today, many of
the servers are sold with the KVM embedded right in it. So this is going to
allow us to be even closer to these customers.
Michael Schneider
-
Robert W. Baird & Company, Inc. - Analyst
I guess,
a different way of asking the question is, have any of these customers developed
their own chipsets or integrated software such that --
David Farr - Emerson Electric Co. - Chairman, CEO, President
Yes.
Michael Schneider - Robert W. Baird & Company, Inc. - Analyst
--
Avocent has been carved out of the process?
David Farr -
Emerson Electric Co. - Chairman, CEO, President
We do
have some customers that have done that, but we have been able to work with them
very closely and we have not lost -- or Avocent has not lost a lot from that
standpoint.
Again,
this is a situation where Avocent is the best in class in the technology and
capability. We're faster. The obsolescence is not a big issue, and we're able to
work right with our key customers.
It's not
something -- what I would say that you see the OEMs are going to be threatened
by this. And they're not going to be threatened by us. Because we're not going
to be a computer company. Were not going to get into the servers. We're not
going to get into that.
What we
want to do is create the capability, the information capability to help the HPs
and help the IBMs and help the Dells and so on do more with this knowledge and
communicate across that whole infrastructure base. So the KVM is the key vehicle
to that because it is that smart intelligence, and in some cases, some of the
computer companies have done some of their own, but in most cases they're still
very strongly tied with Avocent.
Michael Schneider - Robert W. Baird & Company, Inc. - Analyst
And out
of curiosity, how much were you buying from Avocent?
David Farr - Emerson Electric Co. - Chairman, CEO, President
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We bought
a little, not a whole lot. But a little. If you go to our data centers, you see
their product across our business. It's not -- it's not meaningful in the sales
scheme.
Michael Schneider
-
Robert W. Baird & Company, Inc. - Analyst
And then,
just fiscal 2011, because of the aggressive amortization, will it be dilutive as
well on a GAAP basis?
David Farr - Emerson Electric Co. - Chairman, CEO, President
Yes, it
will be.
[E less].
E less.
Operator
[Judy
Delgado].
Judy Delgado Analyst
Actually,
the last question touched on the OEM customers that Avocent has, and I was
really wondering if they would be affected. I see the top four have over 30% of
the revenues there.
David Farr - Emerson Electric Co. - Chairman, CEO, President
Yes, we
don't -- we have a very good relationship with all of these OEMs, and they are
very important to us, strategically, too. And if you look at our top 20 customer
list, you see these same OEMs pop into it. So I don't think we're going to have
a big strategic issue there.
We'll
reach out and work with these customers, and Avocent has had a very good
relationship and we've got a very good relationship, so we feel very comfortable
with that, and there's not any big issue there.
Judy Delgado Analyst
Okay. And
on another note, just curious if there was a -- you were involved in a process
to get to this point. You mentioned earlier on the call that you've been working
on the deal for quite some time. Could you add to that?
David Farr - Emerson Electric Co. - Chairman, CEO, President
No.
You'll see when the material comes out that we reached out, and I've had
conversations with the Board off and on for a couple of years.
Judy Delgado Analyst
So you
weren't part of a strategic process?
David Farr - Emerson Electric Co. - Chairman, CEO, President
No. No, I
initiated it.
Operator
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(Operator
Instructions). Martin Sankey, Neuberger Berman, LLC.
Martin Sankey - Neuberger Berman, LLC - Analyst
My
question is -- in looking at, a casual glance at Avocent's income statement over
the last several years, it seems like profitability peaked in 2006, and then if
you look at the progression since that time, gross margin and R&D expense
are pretty stable as a percentage of sales. But the SG&A, excluding R&D,
ballooned.
Could you
talk to us as to what you think was happening at the company? And what that
might represent as an opportunity for Emerson?
David Farr - Emerson Electric Co. - Chairman, CEO, President
I think
the key issue there, Martin, is they made a decision. They bought a company
called LANDesk, and they've made -- they've been making some significant
investments in that acquisition.
And I
think that as they tried to take that business and go global with it, and they
tried to create their own little solutions capability, so they've been investing
quite aggressively, both in the technology and the global network.
And I
think what you're going to see with the combination of Emerson and Avocent, we
will be able to leverage -- I think that will be the key leverage point for our
standpoint is we are going to globalize it from a best cost-structure
standpoint, but most importantly, we are going to tie it in tighter to our
organization which we have around the world, both in Asia and Europe and Latin
America.
So I
think that will be our point of attack right there, and I think that we'll
strengthen their organization and also strengthen our whole solutions
capability.
They were
trying to do it by themselves. You're looking at a $600 million or $700 million
company trying to do the same thing as a $20 billion company like Emerson does,
and it's a lot more challenging, as you can imagine.
With
that, I need to wrap it up here. I have -- I want to go back to my Board
meeting. I appreciate your time today. This is a very strategic acquisition for
us and I truly appreciate everyone joining us. And if you have any questions,
I'm sure you'll be calling Lynne. And look forward to seeing you all in the near
future. Thank you very much.
Operator
Thank
you. Ladies and gentlemen, this concludes the Emerson agreement to acquire
Avocent Corporation conference call. If you'd like to listen to a replay of
today's conference, please dial 303-590-3030 or 800-406-7325, and enter the
access code 417-0272, followed by the pound sign. (Operator Instructions). ATT
would like to thank you for your participation, and you may now
disconnect.
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ADDITIONAL
INFORMATION AND WHERE TO FIND IT
THIS
TRANSCRIPT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER
TO PURCHASE OR A SOLICITATION OF AN OFFER TO SELL AVOCENT COMMON STOCK. THE
SOLICITATION AND OFFER TO BUY AVOCENT COMMON STOCK WILL ONLY BE MADE PURSUANT TO
A TENDER OFFER STATEMENT ON SCHEDULE TO (INCLUDING THE OFFER TO PURCHASE AND
RELATED MATERIALS) THAT GLOBE ACQUISITION CORPORATION, A WHOLLY-OWNED SUBSIDIARY
OF EMERSON, INTENDS TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC).
AVOCENT’S INVESTORS ARE URGED TO READ THESE MATERIALS, ANY AMENDMENTS TO THESE
MATERIALS, AND ANY OTHER DOCUMENTS RELATING TO THE TENDER OFFER THAT ARE FILED
WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE PRIOR TO
MAKING ANY DECISIONS WITH RESPECT TO THE OFFER SINCE THEY WILL CONTAIN IMPORTANT
INFORMATION, INCLUDING THE TERMS AND CONDITIONS OF THE OFFER. INVESTORS MAY
OBTAIN A FREE COPY OF THESE MATERIALS (WHEN AVAILABLE) AND OTHER DOCUMENTS FILED
BY EMERSON WITH THE SEC AT THE WEBSITE MAINTAINED BY THE SEC AT WWW.SEC.GOV. THE
OFFER TO PURCHASE AND RELATED MATERIALS MAY ALSO BE OBTAINED (WHEN AVAILABLE)
FOR FREE BY CONTACTING EMERSON AT 8000 WEST FLORISSANT AVENUE, ST. LOUIS,
MISSOURI 63136, (314) 553-2197.
16
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[OBJECT OMITTED]
Avocent Acquisition
David N. Farr
October 6, 2009
Safe Harbor Statement:
Our commentary and responses to your questions may contain forward-looking
statements and Emerson undertakes no obligation to update any such statement to
reflect later developments. Information on factors that could cause actual
results to vary materially from those discussed today is available in the most
recent Annual Reports on Form 10-K as filed by Emerson and Avocent with the SEC.
Non-GAAP Measures:
In this call we will discuss some non-GAAP measures (denoted with *) in talking
about Avocent's performance, and the reconciliation of those measures to the
most comparable GAAP measures is contained within this presentation.
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Emerson Network Power Profile
2008 Sales $6.3B
Emerson Data Center Sales by Market
4% 10% 23% 20% 12% 11% 8% 7% 5%
Service
Precision Cooling
Outside Plant
DC Power Systems
AC Power
Embedded
Computing @ Power Other
Education
Healthcare
Web Hosting/
Colocation
Professional
Services
Telecom
Government
Financial
Commercial
$2.6B
~40% of our Network Power Business Serves the Data Center Market
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Emerson Network Power Presence within the Data Center - $2.6B ROOM RACK |
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Data Center Issues and Emerging Strategies
Global Server Shipments
12% CAGR Virtual
Servers
5.6%
CAGR
Data Center Energy Consumption
Communication Processors
Storage Equipment
ISSUES
Other
Electrical Availability
Computing 99.999%
Other Technology
Advances
Energy
Efficiency
Dynamic
Infrastructure
Management
EMERGING STRATEGIES
Shift to Efficient Hardware
o Servers, Storage and Network
o Power and Cooling Infrastructure
Design Data Center for Efficiency
o Arrange Room
o Configure Racks
Shift Loads Real Time
o Use Most Efficient Hardware
o Operate at Optimum Efficient Load
Turn Off
o Retire Idle or Excess Devices
o Manage Hardware and Space Inventory
o Avoid Capacity Additions
o Asset Utilization
Emerson Technologies Impact 57+%
of Data Center Energy Consumption
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Data Center Users Group Survey Results
May 2005 Nov 2007 May 2009
Energy Efficiency Focus Continues to Intensify, and It's
One of Emerson's Core Technologies and Capabilities
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Data Center Infrastructure Management Four Categories Of IT End User Needs
Input from IT End Users
o Optimization Of Energy Usage & Related Operating Costs
o Predictive Diagnostics of Support Infrastructure o Remote Monitoring &
Analysis of Critical Infrastructure
o Capacity Management Tools - Management of Power, Cooling, Connectivity &
Space Based on IT Device Load
o Workflow Management (Add, Change, Decommission) Process Tools
o Visualization & Mapping Tools for Data Center Environment
o Configurator Tools that Recommend Support Infrastructure Designs Based on
IT Device Inputs
o Room & Rack Layout Tools
o Symbol Library of IT & Support Infrastructure Devices
o Real-Time Monitoring of UPS, Precision Cooling, Power Distribution Unit,
Power Strip, Rack & Environmental Devices
Capabilities
Needed
Performance
Optimization
Asset
Management
Configuration
Real-Time
Monitoring
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IT Infrastructure Management Becoming Increasingly Critical Area of Data Centers
Performance Solutions Opportunity
IT
Optimization Building
Management
Mngmt
Companies &
Co's
Asset Server OEMs
Management NOW!
Configuration
Real-Time
Monitoring
Building Room Rack IT Device Software
-------- ---- ---- --------- --------
(Gensets, (UPS, Cooling) (Power Strip, (Servers, (Applications)
HVAC) KVM Switch) Storage)
There is an Unmet Need to Deliver a Comprehensive (Highly Integrated) Solution
Set for Infrastructure Management - Emerson is Well Positioned to Do this with
the Addition of Avocent
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Rack Building Blocks & Terminology
Rack
Device Function Manufacturer
Rack Secure Devices Emerson
Power Strip Power Distribution Emerson
KVM Switch Infrastructure Control Avocent
UPS Reliable Power Emerson
Router Data Routing & Cisco, Juniper,
Delivery Alcatel
Network Switch Network Connection Netgear, Cisco
Drawer Local Access/Control Emerson
Server Computing HP, Dell, IBM,
Sun, Others
Storage Memory EMC, Seagate,
Western Digital
Precision Temperature & Emerson
Cooling Humidity
Extends Data Center Hardware Visibility with Access to IT Device
Operating and Performance Information 8
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Typical KVM Switch Application
2nd 3rd
Remote Remote
Site Site
o A single KVM Switch can control from 1 to 64 Servers
o Multiple KVM Switches used in Combination can control 1000's of Servers,
Enterprise Wide
Rack #1 Rack #2 Rack #3
A KVM Switch Provides IT Administrators with Remote Visibility,
Access & Control of Connected IT Devices
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Avocent Profile
Headquarters: Huntsville, Alabama
Product Profile
KVM Switch Service Processor Manager
DSView Management Suite
($ in millions) Financial Information
(12/31 Year End) '04-'09
2004 2005 2006 2007 2008 (1)2009 CAGR
---- ---- ---- ---- ---- ------- ----
Sales* $365 $370 $521 $603 $657 $540 8.1%
Gross Profit* 213 219 328 393 429
% of Sales* 58.3% 59.2% 63.0% 65.2% 65.3%
Operating Income* 89 74 126 115 118 91 0.4%
% of Sales* 24.4% 20.0% 24.2% 19.1% 18.0% 16.9%
(1)I/B/E/S Consensus Estimates as of 9/30/2009
Source: Avocent Company Public Filings
*Note: Non-GAAP operational results which exclude the effects of amortization
related to purchase accounting adjustments, stock-based compensation,
restructuring, retirement and integration, and acquired in-process R&D.
2008 Geographic
Sales Distribution
Int'l US
48% 52%
2008 Business Segmentation
by Sales
LANDesk
22%
Management
Systems
78%
Note: Does not include Corporate or
Other Segment Revenues
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Avocent Summary
o Avocent Management System Division (MSD) is a Profitable Market Leader in a
Well Structured Industry Segment
o Acquisition Significantly Enhances Emerson's Data Center Solutions
o Increases Customer and Channel Presence - Avocent's Presence With Several
Marquee Accounts Strengthens Our Existing Relationships
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2008 Total KVM Market Participation by Geography
Total = $1.2B
$0.7B $0.3B $0.2B
Aten
Rose Electronics
Belkin
MRV
Raritan
Avocent
Americas Europe Asia
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Avocent Summary
o Avocent Management System Division (MSD) is a Profitable Market Leader in a
Well Structured Industry Segment
o Acquisition Significantly Enhances Emerson's Data Center Solutions
- A Comprehensive Software Package Allows Visibility to the Entire Data
Center Infrastructure to Better Control Energy Consumption and to
Manage the Costs and Complexity of Operations
- Combination of Data Center Room Infrastructure and IT Device Knowledge
Facilitates the Development of a Unique Solutions Business
o Increases Customer and Channel Presence - Avocent's Presence With Several
Marquee Accounts Strengthens Our Existing Relationships
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Data Center Management and Operations
IT Service Management (ITSM)
RACK ROOM
Emerson Network Power will Collect, Monitor and Send Key Operating Information
for ITSM Optimization
Support Delivery
Configuration Availability
Change "Orchestrating Task Management" Continuity
Release Capacity
Incident Service Level
Problem
Service Desk IT Infrastructure Library Configuration Management
Performance Asset Configuration Real-Time
Optimization Management Monitoring
KVM KVM KVM
Server Server Server
Storage Storage Storage
Infrastructure Management
Transfer UPS PDUs Fire
Switches
Surge Battery Precision Intelligent Security
Suppression Management Cooling Racks
Electric Utility Generators Cool Air Chilled Water
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Capabilities to Address Data Center Needs
Emerson *
Major Needs / Opportunities Avocent
Optimize Energy Consumption
Performance Load Most Efficient Devices
Optimization Predictive Diagnostics to Optimize IT Devices
Equipment and Device Inventory
Turn Off Idle Devices
Asset Repair vs. Replace
Management Map Power Schematic
Map Network Connections
Retire Underutilized Devices
Configuration Layout and Populate IT Device Parameters
Optimize and Track Equipment/Layout Changes
Real-Time Monitor and Verify Capacity and Loading
Monitoring Determine Device Efficiency Profile
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Data Center Solutions Value Potential
Quantity
Size and Quantity of Data Centers
Solutions Opportunities in One Large Date Center
Typical Spend Emerson
Value Driver (000's) Opportunity
Performance Energy $2,000- $4,000 10-25%
Optimization
Availability/Reliability $400- $900
Asset Inventory Mgmt $200- $400 10-20%
Management
Maintenance Mgmt $300- $600
Configuration Capacity Planning $1,400- $2,800 20-30%
Project Mgmt $400- $900
Real-Time Verify System Status Tool to Enable the Above
Monitoring Opportunities
Data Center Solutions Represent a $1+ Billion
Opportunity Space
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Avocent Summary
o Avocent Management System Division (MSD) is a Profitable Market Leader in a
Well Structured Industry Segment
o Acquisition Significantly Enhances Emerson's Data Center Solutions
o Increases Customer and Channel Presence - Avocent's Presence With Several
Marquee Accounts Strengthens Our Existing Relationships
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Emerson Network Power
2008 Marquee Accounts
Emerson Avocent
Avocent Extends
Emerson's
Position with
Several Marquee
Accounts
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Acquisition of Avocent
o Transaction is Expected to Close around January 1st, 2010
o Avocent Will Be Integrated into Network Power Over the Next 9-12 Months,
with Relevant Liebert Products/Solutions Business
o Avocent sales would be approximately $400 million for 9 months of FY2010
o Emerson estimates FY2010 dilution to EPS of $0.10
- Includes inventory write-up, amortization of intangibles and
acquisition costs, and historical stock awards
- Assumes conservative amortization of $350 million intangibles over 6
years
- 2011 cash flow EPS accretive
o Key Future Development of Software Solution to Open up Expanded Market
Capabilities to Work with Key Computer OEMs - IBM, HP, Dell
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Reconciliation of Non-GAAP Financial Measures
Restructuring,
Purchase Integration and Non-GAAP
GAAP Financial Stock-Based Accounting Retirement Operational
($ in millions) Measures Compensation Adjustments Expenses Measures*
- --------------------------------------------------------------------------------------------------------
Y-E 12/31/2008
Net Sales $ 657 - - - $ 657
Gross Profit $ 414 1 14 - $ 429
Operating Income $ 33 25 48 12 $ 118
Y-E 12/31/2007
Net Sales $ 601 - 2 - $ 603
Gross Profit $ 379 1 13 - $ 393
Operating Income $ 50 20 45 - $ 115
Y-E 12/31/2006
Net Sales $ 519 - 2 - $ 521
Gross Profit $ 322 1 5 - $ 328
Operating Income $ 62 14 50 - $ 126
Y-E 12/31/2005
Net Sales $ 370 - - - $ 370
Gross Profit $ 219 - - - $ 219
Operating Income $ 53 2 19 - $ 74
Y-E 12/31/2004
Net Sales $ 365 - - - $ 365
Gross Profit $ 213 - - - $ 213
Operating Income $ 29 6 54 - $ 89
*Note: Non-GAAP operational results which exclude the effects of amortization related to purchase
accounting, adjustments, stock-based compensation, restructuring, retirement and integration, and
acquired in-process R&D.
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Additional Information and Where to Find It This presentation is for informational purposes only and does not constitute an offer to purchase or solicitation of an offer to sell Avocent common stock. The solicitation and offer to buy Avocent common stock will only be made pursuant to an offer to purchase and related materials. Investors and security holders are urged to read these materials carefully when they become available since they will contain important information, including the terms and conditions of the offer. The offer to purchase and related materials will be filed by Emerson with the Securities and Exchange Commission (SEC), and investors and security holders may obtain a free copy of these materials (when available) and other documents filed by Emerson with the SEC at the website maintained by the SEC at www.sec.gov. The offer to purchase and related materials may also be obtained (when available) for free by contacting Emerson at 8000 W. Florissant Avenue, St. Louis, Missouri 63136, (314) 553-2197. |