T H E D . E .

S H AW G R O U P ’ S P E R S P E C T I V E S
ON EMERSON ELECTRIC CO.

OCTOBER 2019

www.DEShawMaterials.com
Disclaimer
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COPYRIGHT © 2019 D. E. SHAW & CO., L.P. ALL RIGHTS RESERVED.

2
About The D. E. Shaw Group

Founded in 1988, the D. E. Shaw group is a global investment and technology development firm with over $50 billion in assets under management, predominantly
from institutional investors. We have a significant presence in the world’s capital markets, investing in a wide range of companies and financial instruments in both
developed and developing economies.

The D. E. Shaw group has been a long-term shareholder of Emerson Electric Co. (“Emerson Electric” or “Emerson”)

We have partnered successfully to catalyze shareholder value creation at numerous companies

We have performed extensive research to understand Emerson’s various businesses and available value creation opportunities. Specifically, we have:
• Used publicly available financial information to determine Emerson’s relative financial and operational performance and capital allocation track record
• Worked with experienced operating partners within the industrial automation and HVAC industries, including numerous former Emerson employees, to further our
understanding of Emerson’s markets, competitive dynamics and strategic positioning
• Retained a leading consulting firm to aid in our in-depth due diligence through analysis of Emerson’s operations, with an emphasis on understanding cost
reduction, efficiency improvement opportunities and other potential areas for Emerson to improve across its key business units, including but not limited to:
– Detailed assessment of cost rationalization opportunities (including a line-item analysis for every cost element within the Automation business and corporate
center)
– Analysis of publicly available headcount and salary data from online employment-oriented services to deconstruct Emerson’s cost structure on an outside-in
basis
– Detailed assessment of any dis-synergies that would result from separation of Emerson’s business units
• Retained tax and corporate counsel to understand various transaction structures involving Emerson’s principal business segments and relevant governance
mechanisms

3
C H A N G E I S N E E D E D AT E M E R S O N E L E C T R I C

4
Change is Needed at Emerson Electric

EMERSON HAS DELIVERED LESS VALUE TO SHAREHOLDERS THAN ITS PEERS AND THE MARKET
• Emerson’s total shareholder return has underperformed proxy peers and the market by 45% and 47%, respectively, in the past five years
• Emerson has also lagged peers in each of its business segments, underperforming automation peers and HVAC peers by 24% and climate peers by 88%
• Emerson’s stock performance has lagged every relevant peer over every relevant time period

EMERSON HAS A POOR TRACK RECORD OF CAPITAL ALLOCATION

• Emerson’s capital deployment has resulted in incremental returns below its cost of capital from 2000-2018
• Emerson spent nearly $7 billion building the Network Power segment from 2000-2015 and then sold it for just $4 billion
• Emerson attempted to pay 20x EBITDA for Rockwell Automation despite clear shareholder dissatisfaction with the deal

EMERSON HAS UNDERPERFORMED OPERATIONALLY AND SHOWS SIGNS OF POOR EXECUTION AND COST CONTROL
• Emerson has the highest levels of SG&A and corporate expense relative to sales amongst peers
• Emerson’s Automation business has lower margins than peers in each of its business lines
• Emerson misses estimates much more frequently than peers eroding investor confidence

EMERSON’S GOVERNANCE PRACTICES ARE NOT SHAREHOLDER FRIENDLY

• Emerson is among 12% of S&P 500 companies and the only one of its proxy peers that maintains a classified board and prohibits annual elections for directors
• Emerson’s shareholders have overwhelmingly voted to declassify Emerson’s Board and yet the Board has failed to effectuate their will despite having means to
do so
• Emerson’s executive compensation structure is not aligned with shareholder returns and performance incentives pay out regardless of performance

EMERSON IS SEVERELY UNDERVALUED DESPITE BEST-IN-CLASS ASSETS, AND WE WOULD LIKE TO WORK TOGETHER
CONSTRUCTIVELY WITH THE EMERSON BOARD AND MANAGEMENT TEAM TO UNLOCK VALUE FOR ALL SHAREHOLDERS

5
E M E R S O N H A S D E L I V E R E D L E S S VA L U E T O S H A R E H O L D E R S
THAN ITS PEERS AND THE MARKET

6
Emerson Has Underperformed Any Relevant Peer Set Over Any Relevant Time Period

TOTAL SHAREHOLDER RETURN 1 YEAR 3 YEAR 5 YEAR 10 YEAR

Emerson’s TSR vs.

Proxy Peers(1) -10% -1% -45% -198%
Automation Peers(2) -13% -7% -24% -155%
HVAC OEM Peers(3) -29% -19% -88% -272%
Multi-Industry Average(4) -13% -4% -42% -209%
ISS Selected Peer Average(5) -16% -23% -71% -235%
O&G Exposed Peers(6) -11% -7% -19% -159%
XLI -15% -7% -42% -138%
S&P 500 -18% -11% -47% -125%

Note(s):
• Source: Bloomberg
• Market Data as of 9/26/19, one day prior to press reports of the D. E. Shaw group’s involvement with the 3. Includes Johnson Controls, United Technologies, Lennox and Ingersoll Rand
Company 4. Includes Rockwell, Honeywell, Flowserve, ABB, Johnson Controls, United Technologies, Lennox, Ingersoll Rand, Fortune
• Peer index returns calculated on an equal weighted basis Brands, Stanley Black & Decker, 3M, Allegion, AMETEK, Dover, Eaton, Fortive, General Electric, Parker Hannifin, Pentair,
1. Includes Caterpillar, Cummins, Danaher, Deere, DowDuPont, Eaton, Fluor, General Dynamics, Goodyear Cognex, Gardner Denver, Roper, nVent, Kennametal, Graco, Illinois Tool Works, Siemens, Schneider, ROTORK and SPX
Tire, Honeywell, Illinois Tool Works, Ingersoll Rand, International Paper, Lockheed Martin, Northrop Flow
Grumman, Parker Hannifin, PPG, Raytheon, Schlumberger, TE Connectivity, Textron, United Technologies 5. Includes 3M, Deere, Honeywell, Ingersoll Rand, Cummins, Raytheon, Eaton, ITW, Textron, Parker Hannifin, Rockwell, L3
and 3M Harris, Paccar
2. Includes Rockwell, Honeywell, Flowserve, ABB, ROTORK and Schneider 6. Includes ABB, AMETEK, Dover, Flowserve, Honeywell, Pentair, Rockwell, ROTORK 7
During the Past Five Years, Emerson Has Underperformed Proxy Peers
and the Market by 45% and 47%, Respectively

80%

60%

40%

20%

0%

Proxy Peer Index Return (1)

-20% EMR

S&P 500 Return

-40%
14

15

16

17

18

8
15

16

17

18

19
5

9
-1

-1

-1

-1

-1
-1

-1

-1

-1

-1
p-

p-

p-

p-

p-
n-

n-

n-

n-

n-
c

ar

ar

ar

ar

ar
Se

De

Se

De

Se

De

Se

De

Se

De
Ju

Ju

Ju

Ju

Ju
M

M
Note(s):
• Source: Bloomberg
• Market Data as of 9/26/19, one day prior to press reports of the D. E. Shaw group’s involvement with the Company
• Peer index returns calculated on an equal weighted basis
1. Proxy Peer Index includes Caterpillar, Cummins, Danaher, Deere, DowDuPont, Eaton, Fluor, General Dynamics, Goodyear Tire, Honeywell, Illinois Tool Works, Ingersoll Rand, International Paper, Lockheed Martin, Northrop Grumman,
Parker Hannifin, PPG, Raytheon, Schlumberger, TE Connectivity, Textron, United Technologies and 3M 8
EMERSON HAS A POOR TRACK RECORD
O F C A P I TA L A L L O C AT I O N

9
Emerson’s Capital Deployment Has Resulted in Incremental Returns Below Its Cost of
Capital…

Since 2000, Emerson has spent nearly … resulting in a 3% pre-tax

… yet EBITDA-CAPEX has
$14bn of capital between M&A and capital return on incremental capital
grown by only $400mm…
expenditures… during the period

16,000 4,000
4,457 12.0% 11.4%
13,802 )
668 18
14,000 3,500 ‘00-’
(
GR
CA
% 2,967 10.0%
12,000 3,000 0.9 9.2%

10,013 2,526
10,000 2,500 8.0%

$mm
$mm

8,000 2,000
6.0%
6,000 1,500
4.0% 3.2%
4,000 1,000

2.0%
2,000 500

0 0 0.0%
EBITDA - CAPEX EBITDA - CAPEX (2)
Net Capex Net M&A Work ing Total EMR Return on EMR Cost of Peer Average(3)
Spend (1) Capital Capital (2000) (2018) Incremental Capital ROIIC
Released Spend Invested
Note(s): Capital
• Source: Company filings
• Return on Incremental Invested Capital (“ROIIC”) is defined as incremental EBITDA-CAPEX during the period divided by incremental net capital spend and is adjusted for spinoffs and stock acquisitions
1. Net M&A spend calculated as total acquisition spend less divestiture proceeds
2. Emerson’s WACC based on Bloomberg data
3. Peer group includes Emerson proxy peers and operational peers on page 11 10
…And Meaningfully Below Those of Peers

Emerson’s Incremental Return On Invested Capital during the time period from 2000-2018 is near the bottom of peer group

35%

30%
Return on Incremental Capital Spend (%)

25%

20%
35%
15%
25% Peer
Average:
10% 21% 20% 11.4%
19% 19%
17%
15% 14%
13%
12% 12%
5% 10% 10% 9% 9% 9% 9% 8% 8% 7% 6%
5% 4% 4% 3% 3% 0%
0%
IR

ROK

ITW

LII

RTN

HON

CMI

FLR

LMT

PH

MMM

DHR

CAT

ETN

PPG

SWK

GD

UTX

JCI

DE

DD

FLS

TEL

NOC

GT

EMR

SLB

TXT

IP
-5% -4%

Note(s):
• Source: Company filings
• Return on Incremental Invested Capital (“ROIIC”) is defined as incremental EBITDA-CAPEX during the period divided by incremental net capital spend and is adjusted for spinoffs
and stock acquisitions
• Peer group includes Emerson proxy peers and operational peers 11
Emerson’s Network Power Investment Destroyed Value

Emerson’s average buy-in multiple …resulting in shareholder value

Despite paying hefty price tags,
for Network Power was nearly destruction as Emerson spent
Emerson was unable to meaningfully
double that of the ultimate sale nearly $7bn building Network Power
grow acquired EBITDA…
multiple Emerson received and then sold it for $4bn

16.0x 500 9,000

14.9x 471 Inflation Adjusted
450 438 Acquisition Spend:
14.0x 8,000 $8.3bn
400 7,000
12.0x 6,518
350
6,000
10.0x
300
EV/EBITDA (x)

8.5x 5,000

$mm
$mm
8.0x 250 4,000
4,000
6.0x 200
3,000
150
4.0x
2,000
100
2.0x
50 1,000

0.0x 0 0
Average Buy in Sale Multiple
Multiple (Sinc e
Acquired 2016 EBITDA Acquistion Sale Price
2000) EBITDA Spend Since
2000
Note(s): 12
• Source: Company filings, Company press releases and various sell side equity research reports
Emerson’s Attempt to Purchase Rockwell Automation Generated
Extreme Shareholder Dissatisfaction

Emerson was willing to pay ~20x EBITDA …and the stock underperformed the market
for Rockwell Automation… by 13% in the weeks following the bid

25.0x 2%
+0.6%
0%
19.7x 19.7x
20.0x
-2%
15.5x

Share Price Return

EV/EBITDA (x)

15.0x 14.9x -4%

12.8x 12.4x
11.2x
10.1x -6%
10.0x
-8%

5.0x -10%

-12% -12.4%
0.0x
10/31/2017 Bid 11/16/2017 Bid Today -14%
ROK EMR
30-Oct-17 16-Nov-17
ROK w/ Synergies
Emerson S&P 500

Note(s):
• Source: Bloomberg and Company press releases
• Market Data as of 9/26/19, one day prior to press reports of the D. E. Shaw group’s involvement with the Company 13
E M E R S O N H A S U N D E R P E R F O R M E D O P E R AT I O N A L LY A N D
SHOWS SIGNS OF POOR EXECUTION AND COST CONTROL

14
Emerson Has the Highest Levels of SG&A Relative to Sales Amongst Peers

Relevant peer benchmarking indicates that SG&A could be reduced by nearly

500bps to ~20% of sales resulting in nearly $900 million in savings

30.0%
Automation (60% of revenue) Climate (27% of revenue) Tools (13% of revenue)

25.0% 24% 25%

23% 23%
22%
21%
Peer
2018 SG&A % of Sales

20.0% Weighted
18% 19% Average
19.6%
16%
15.0%
13%
12%

10.0%

5.0%

0.0%
Honeywell Siemens ABB Flowserve Rockwell UTX Lennox Johnson Ingersoll Stanley Emerson
Controls Rand

Note(s):
• Source: Company filings. SG&A includes R&D expenses and is adjusted for one-time items including restructuring charges, currency translation, gains/losses on asset sales and other non-recurring expenses
• = SG&A adjusted for amortization of intangible assets. Emerson stands above most peers at 23% of sales compared to 19% for the peer weighted average
15
Emerson’s Employee Productivity Metrics Lag Both Direct Peers and the
Broader Multi-Industrial Universe

Emerson’s revenue per employee significantly lags …and ranks near the bottom of the broader multi-
peer averages across each of its business lines… industrial universe

Automation Climate Tools $500,000

(60% of (27% of (13%)
revenue) revenue)
$400,000
$450,000

$350,000 $400,000

Reveneue Per Employee

$300,000 $350,000
Peer Multi
Weighted Industrial
Reveneue Per Employee

Average $300,000 Average

$250,000 $247,000 $288,000

$250,000
$196,552
$200,000

$200,000

$150,000
$150,000

$100,000
$100,000

$50,000 $50,000

$0 $0

SIE

FLOW
DH R
ALL E

GE
ETN

IR
SWK

MMM

GDI
AME

ROK
DOV

ROP
ABB

CFX

UTX
FLS
KMT

LII
FBHS

PH
EMR

HON
JCI

GGG
FTV

CGNX
NVT

ITW
PNR
N

R
E
S

IR
K

K
B

TX
I
JC

LI
FL

O
AB

O
SI

SW

EM
U
R
H

Note(s):
• Source: Company filings.
16
Emerson’s Automation Business is Being Under-Managed Relative to Its Potential

Emerson’s Automation Solutions segment EBITDA margin of 20.9% in 2018 is below peer average margins in
each of its business lines

Process
Automation (50%)

Instrumentation Process Control Discrete Valves/Final

(31% of revenue) (19%) Automation (17%) Control (33%)

35.0%

Peer
30.0% Weighted
29.8% Average
25.5%
25.0% 26.6%
2018 EBITDA Margin%

24.9% Adj. EBITDA

24.1% Margin(4):
20.0% 21.7% 21.7%
20.9%
19.0%
15.0%

10.0%

5.0%

0.0%
AMETEK Fiel d Honeywell Rock wel l Siemens Flowserve ROTORK (3) EMR Automation
Instrumentation (1) Process Solutions (2) Automation Digital Industri es Flow Control
Note(s):
• Source: Company filings
1. AMETEK field instrumentation margins in-line with segment average for AMETEK’s Electronic Instruments Group (EIG)
2. Honeywell Process Solutions sub-segment EBITDA margins estimated to be in-line with Performance Materials and Technologies segment per management direction; adjusted to exclude
impact of new Smart Energy business in 2017 17
3. ROTORK margins exclude ROTORK Gears segment
4. Adjusted to reflect eighty basis point charge from Emerson corporate center to Automation segment
Emerson Automation Outspends Peers Across Most G&A Categories
Due To a Culture of Cost Mismanagement

Emerson’s Automation Solutions segment appears to be less efficient than peers across every G&A category
with the exception of research and development based on bottom-up deconstruction of Emerson’s cost base

Finance HR IT Legal Procurement R&D Marketing

3.5%

3.0% 2.9% 2.9%

2.5%
2.5%
2.2%
2.0%
% of Sales

1.5% 1.4% 1.4%

1.1% 1.1% 1.2%
1.0% 0.8% 0.9%
0.6%
0.5% 0.4% 0.3%

0.0%
R

R
er

er

er

er

er

er

er
EM

EM

EM

EM

EM

EM

EM
rm

rm

rm

rm

rm

rm

rm
rfo

rfo

rfo

rfo

rfo

rfo

rfo
Pe

Pe

Pe

Pe

Pe

Pe

Pe
n

n
ia

ia

ia

ia

ia

ia

ia
ed

ed

ed

ed

ed

ed

ed
M

M
Note(s):
• Source: Proprietary analysis by leading consulting firm based in part on comprehensive review of publicly available headcount and salary data from online employment-oriented services that
covers over 80% of Emerson G&A employees, industry expert interviews and CEB Benchmark data for large (>$1bn) industrial companies
• Median performer represents the median of CEB Benchmark data for large industrial companies 18
Emerson Automation Could Benefit From Footprint Consolidation in Houston…

Emerson Automation has as many as eighteen facilities in the City of Houston alone

Appleton Grp LLC - MFG

Houston Rosemount Pentair Valves & Controls 84k ft2, Houston, Texas
Analytical-Training Center – HQ: 10707 Clay Rd
Daniel Industries Inc Hq &
USA. Acq Apr. ‘17
MFG: 5.6k ft2 Permasene,
Emerson AS Offices: Acq. Oct.
Final Control – 2016
HQ & MFG,
350
employees,
Automatic Switch Co –
Branch 3k ft2 ~600 215k Ft2
Employees
Instrument &
Geofields, Inc.
Valve Service
HQ & MFG,
company. Office &
est. 4k ft2
WH, ~136k ft2
Acq Oct ‘16
Emerson Process Management Power Paradigm Geophysical
& Water Solutions - MFG 15740 Park Corp. 12k ft2, ~120
Row, Houston, Texas, USA employees

Emerson Energy Solutions International Pentair, Inc. & Pentair SSC

6005 Rogerdale Rd, Houston, Texas, USA US Co –
Office (6) Office & MFG, 60k ft2., All
MFG (4) Pentair had ~10k employees
HQ (3)
when acquired Apr.’17
Branch (2)

Emerson Magtech Acq. 2012

HQ and MFG (2) Rosemont Gauges North America Branch Rosemont Offices Emerson AS Final Control US LP
Office and MFG (1) ~25 – 50 employee on site, $40M 12603 Southwest Fwy 283.5k ft2 ~347 employees
renovation in ‘14 here and in Minn.

Note(s):
• Source: Company information, web-based map provider 19
• 6005 Rogerdale Road includes two office locations onsite for distinct Emerson businesses (Emerson Process Management and Emerson Energy Solutions International), bringing the total facility count to eighteen
…Which Is Not the Only Location with Multiple Rooftops

In addition to Houston, Emerson has ten

other cities with three or more rooftops Calgary is just another such example
and over thirty with two or more

Number of Emerson Rooftops by City

8
Energy solutions international office
Zedi Inc. office
633 6th Ave SW Calgary
902 11th SW Calgary Acquired 2019

5 5 5 v v
4 4 4

3 3 3

Paradigm Geophysical Canada Ltd office

125 Ave. SE, Calgary

Emerson Process
n

ry

ai

Management/Emerson Centre HQ
s

en

tt e
go
ai

la
or

to
ila

nn
ga
gh

rlo
ca

z
al
on
ap

en

110 Quarry Park Blvd, Calgary

he
al
an

D
hi

ha
m
ng

Sh
C
Sh

C
Ed

C
Si

Note(s):
• Source: Company information, web-based map provider 20
Emerson Automation’s Salesforce Productivity Significantly Trails Peers

Current salesforce productivity within Emerson’s Automation business is below internal benchmarks and
meaningfully below that of other engineered industrial equipment businesses

$4.0 $3.8
$3.6
$3.5 $3.4
Average:
$3.2mm
$3.0 $2.8
Revenue Per Salesperson ($mm)

$2.6
$2.5

$2.0
$1.5
$1.5
$1.2

$1.0

$0.5

$0.0
EMR AS (1) EMR AS - Internal(2) Engineered industrial Engineered valves, LV/MV electrical LV/MV electrical Pumps, compressor
Target materials comp pumps comp equipment comp 1 equipment comp 2 equipment

Note(s):
• Source: Proprietary analysis by leading consulting firm, Company investor presentations, the D. E. Shaw group proprietary estimates
1. Based on 12,500 salespeople from page 128 of Emerson 2019 Investor Day Presentation; assumes 25% of listed salespeople are Emerson impact partners. The fully loaded revenue per salesperson is ~$900,000
2. Interviews with former Emerson employees 21
Emerson Has the Highest Corporate Expense Levels as a Percentage
of Sales Among Multi-Industrial Companies

Despite underperforming segment margins within Automation Solutions,

Emerson maintains the largest corporate center in the multi-industrial universe

2018 Corporate Expense % of Sales

4.0%

3.5%

3.0%

2.5%

2.0%
Peer
Average:
1.5% 1.6%

1.0%

0.5%

0.0%

EM 2)
)
S (1

P(
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T

R
N

R
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IR
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TX

FX
G
PH

LE

SU
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HS
W

HR
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JC
D

LI

V
FT
KM

FL
O

O
AB
O

O
SI

AM
SW
G

ET

PN
G
IT

O
M
G

AL
U

N
FB
R

R
H

R
G
M

Note(s):
• Source: Company filings
1. Flowserve corporate expenses adjusted to reflect higher corporate expense from transformation costs associated with Flowserve 2.0
2. Roper corporate expenses adjusted to reflect $35 million of accelerated vesting associated with the passing of former executive chairman 22
Emerson Operates an Exceptionally Large Fleet of Private Jets Which Suggests
a Culture of Excessive Costs…

A relic of a bygone era in corporate America, Emerson …which costs shareholders millions
maintains a fleet of eight private jets and a helicopter… of dollars annually…

10
+1 Helicopter

8
Number of Private Jets

Peer
Avg.: 1

0
FLS LII ITW ETN DOV IR JCI SWK MMM ROK EMR
Emerson’s internal airline has taken 260 flights in the last 90 days(1), averaging
roughly three flights a day, despite commercial alternatives on many routes

Note(s):
•
1.
Source: FAA registrations, Business Jet Traveler, Conklin & de Decker (business aviation consultancy) Aircraft Performance Comparator
The D. E. Shaw group proprietary estimates
23
… And Personal Usage of Aircraft By Emerson’s CEO is Substantially Higher Than Peers

Emerson’s CEO is compensated over $300,000

…which is 4x more than the average for
annually in perquisites related to personal usage of
Emerson’s proxy peers (1)
private jets…

CEO Personal Usage of Aircraft

2018 $359,000
$400,000

2017 $307,000 $350,000

2016 $319,000 $300,000

2015 $259,000 $250,000

2014 $278,000 $200,000

$150,000
2013 $295,000

$100,000 Peer
2012 $353,000
Average:
$50,000 $77,481
2011 $304,000
$0
0 0 0 0

Eaton

Honeywell
DowDupont
Danaher
Goodyear

United Tech.
Fluor

TE Conn.

Cummin s
Textron

Deere

Caterpillar
ITW

Ingersoll Rand
Parker Hannifin
Schlumberger

PPG

3M

Emerson
Int'l Paper
2010 $325,000

2009 $304,000

Note(s):
•
1.
Source: Emerson proxy materials; SEC proxy materials for other companies listed
Excludes proxy peers in the aerospace and defense industry
24
Emerson Even Has a Separate Aviation Department Staffed With Over Forty Employees

Emerson’s aviation department was established in 1973 … and has a highly coveted full time
and has amassed more than 160,000 flight hours… eight week summer internship

Dassault Falcon 7x Dassault Falcon 7x

Dassault Falcon 2000EX Raytheon Hawker 850XP

Dassault Mystere Falcon 50 Dassault Falcon 900 EX

Dassault Breguet Falcon 50 Dassault Mystere Falcon 900

Note:
• Source: FAA registrations; undergraduate job posting 25
• Aircraft images represent standard examples of each aircraft model highlighted above
Emerson Misses Estimates Much More Frequently Than Peers Leading to An
Erosion in Investor Confidence…

Emerson misses EPS estimates over 40% of the time

(~2x as much as ROK and ~3x as much as Operational Peers and Proxy Peers)

40%

30%

20%

10% (1) (2)

EMR ROK Proxy Peers Operational Peers

Note(s):
• Source: Bloomberg average of last five years
1. Operational peer group includes Lennox International, Rockwell Automation, Stanley Black & Decker, Ingersoll Rand, Honeywell, United Technologies, Flowserve
2. Proxy peer group includes Caterpillar, Cummins, Danaher, Deere, DowDuPont, Eaton, Fluor, General Dynamics, Goodyear Tire, Honeywell, Illinois Tool Works, Ingersoll Rand, International
Paper, Lockheed Martin, Northrop Grumman, Parker Hannifin, PPG, Raytheon, Schlumberger, TE Connectivity, Textron, United Technologies and 3M 26
… And Skepticism Towards Emerson’s Ability to Achieve Its 2021 Targets

Current consensus estimates imply

…and the market is skeptical of Emerson’s 2021 EPS
that Emerson will miss its recently
targets as well
released 2021 revenue target by 11%…

$4.50

22,000

$4.16
19,664
$mm

2021 Target 2021 Consensus 2021 Target 2021 Consensus

Note(s):
• Source: Company Investor Presentation and Bloomberg Consensus Estimates 27
EMERSON’S GOVERNANCE PRACTICES
A R E N O T S H A R E H O L D E R F R I E N D LY

28
Emerson’s Governance Practices Prevent Meaningful Shareholder Engagement…

Emerson is the only company in its proxy peer A proposal to declassify the board of directors in 2013
group that still has a staggered board and one of received overwhelming support from voting
a small minority in the S&P 500 shareholders…

2.0%
100%
EMR EMR
+ sixty
others

For
% of Companies that have de-staggered Board

80%
Abstain
98.0%

60%
…but Amendments to the Articles of Incorporation require
the vote of 85% of all shareholders (voting and
non-voting), an unrealistic requirement allowing the
40% Company to ignore the will of shareholders

20%
29%
% Voting EMR
Shareholders
% Non-voting
71%
0%
S&P 500 EMR Proxy Peers

Note(s):
• Source: Company proxy materials 29
… And the Board Has Not Made an Attempt to Address This Issue

Emerson touted its declassification proposal …but if Emerson wanted all directors to be elected annually, it
as evidence of good governance in its latest would amend its bylaws to allow each
proxy statement… class one year terms that expire each year

CORPORATE GOVERNANCE HIGHLIGHTS RESTATED ARTICLES OF INCORPORATION

OF EMERSON ELECTRIC CO.
Shareholder Responsiveness
Except as otherwise provided in the By-laws with respect
“We recognize that the right of shareholders to amend
to the implementation on this Article 5, Directors shall be
bylaws and a declassified Board of Directors are elected to hold office for a term of three years, with the
increasingly considered important aspects of good term of office of one class expiring each year.
corporate governance. In response to these trends and
shareholder requests, we have acted. Last year, we approved Emerson’s decision to no longer offer
and submitted for shareholder approval amendments to our shareholders the opportunity to declassify the
Restated Articles of Incorporation providing shareholders the Board is further indication that the Company
does not want its Board declassified
right to amend our Bylaws. However, under our Restated Articles
of Incorporation, the amendment required the vote of 85% of Annual Meeting Date Declassification Proposal?
outstanding shares in favor for approval, which was not attained.
February 2019 NO
Similarly, our Board recently proposed an amendment to our February 2018 NO
Restated Articles to declassify our Board. That amendment February 2017 NO
also required such 85% vote and did not attain the required February 2016 NO
February 2015 NO
approval level”
February 2014 NO
– Emerson Electric 2018 Proxy Materials February 2013 YES
February 2012 YES

Note(s):
• Source: Company proxy materials and Restated Articles of Incorporation 30
Emerson’s Long-Term Incentive Compensation Structure
Rewards Growth over Shareholder Returns…

Emerson’s performance measures do not As a result, Emerson’s executive officers have been
contemplate operating return or shareholder return paid 86%-97% of compensation targets in every
metrics… evaluation period regardless of stock performance
Performance Measures for Long-Term Incentive
Compensation: 100% 96% 97%
93%
1. Earnings Per Share Growth (60%) Average:
93%
90% 86%
a) Target: Earnings Per Share Compound Annual
Growth Rate over three years greater than or
80%
equal to G7 GDP + 300 basis points
70%
2. Free Cash Flow (40%)

% Payout of Target
a) Target: Cumulative Free Cash Flow greater than or 60%
equal to the sum of yearly Free Cash Flow Target.
Yearly Free Cash Flow target calculated as prior 50%
year Free Cash Flow increased by growth rate
equal to G7 GDP + 300 basis points 40%

…unlike over 90% of its proxy peers 30%

120% 20%
95%
100%
77%
80%
10%
60%
40%
0%
20%
2007-2010 Plan2010-2013 Plan2013-2016 Plan2016-2018 Plan
0%
Proxy Peers w/ either TSR or Proxy Peers w/ TSR Metric for Long
Operating Return Metric for Long Term Term Incentive Compensation From January 2007 through December 2018, Emerson
Incentive Compensation underperformed proxy peers by 118% yet still averaged a 93%
payout of Long-Term incentive compensation during the period
Note(s): 31
• Source: Emerson 2019 Proxy Statement
…Which Has Led to a Decoupling Between Executive Compensation
and Total Shareholder Returns…

Emerson has paid its CEO over $150 million …despite total shareholder returns during the
during the past ten years (50% more than S&P 500 period that have lagged the S&P 500 and Rockwell
average and nearly double that of Rockwell)… by 118% and 340%, respectively

$160 700%
$152

$140 600%
10-Year CEO Compensation ($mm)

500%
$120
$103 400%
$100
$88
300%
$80
200%
$60
100%
$40
0%
$20

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18
Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Jul-15

Jul-16

Jul-17

Jul-18
-100%

$0
Emerson S&P 500 Rockwell ROK EMR S&P 500 Return
Note(s):
• Source: Bloomberg
• Market Data as of 12/31/2018
32
...Allowing For Emerson’s CEO to Be Paid Substantially More Than Peers
per Dollar of Shareholder Value Created

One dollar invested in Emerson ten years ago has generated less …but for each dollar of value creation, Emerson’s
shareholder value than one invested in either Emerson’s proxy CEO has been paid 2.5x and 3.1x more than the
peers or the S&P 500… average proxy peer and S&P 500 CEO, respectively

2.0x
EMR $132,627,383
$4.50
$4.21

10 Year Compensation Per Dollar of Value Created

$4.00
Dollars of Shareholder Value Created + Cost Basis ($)

1.5x
EMR
$3.50 $3.32

$3.00

$2.50 0.4x
$2.15 EMR

($)
$2.00 0.3x
$53,594,618 EMR

$1.50 $42,440,643

$1.00

$0.50

$0.00
EMR Proxy Peers S&P 500 EMR Proxy Peers S&P 500

Note(s):
• Source: Bloomberg
• Market Data as of 12/31/2018
33
All But One of Emerson’s Proxy Peers Include a Return Focused Metric
in Long-Term Incentive Compensation…

Return Focused
Company Name LTI Performance Metric
Metric?

NO

Note(s):
• Source: Company proxy filings 34
…Which Correlates To Outperformance Amongst Industrial Companies

Inclusion of return focused metrics … and has correlated to average annual … while companies that use EPS
in company LTI plans has increased in TSR outperformance at or free cash flow measures have
the last five years… those companies… underperformed

90%
2.00% 0.00%
81%
80%
% of Industrial Companies including return metric in LTI

70% -0.50%

(1)
Average Relative Return % (1)

Average Relative Return %

1.50%
60% 57%

-1.00%
50% 54%

40%
1.00% -1.50%

30%

20% -2.00%

0.50%
10%
-2.50%
0%
2013 2014 2015 2016 2017 2018 2019
TSR

Return on Capital 0.00% -3.00%

Companies with Companies with Companies with EPS Companies with FCF
TSR or Return on Capital ROIC in LTI TSR in LTI in LTI in LTI

Note(s):
• Source: Goldman Sachs Research analysis of seventy industrial companies 35
1. Average relative return defined as three year rolling average relative TSR for those companies that include contemplated performance measure in LTI plan from January 2012 - December 2018
E M E R S O N I S S E V E R E LY U N D E R VA L U E D
DESPITE BEST-IN-CLASS ASSETS

36
Regardless of Execution and Governance Shortcomings, Emerson
Has Top Tier Automation Assets...

Emerson is a Leading Player by Market Share In Every

…and its Products are Ranked Highly by
Process Automation Category in Which it
both Customers and Competitors
Participates…

Reader’s Choice Awards Highlight Emerson’s Brand Strength

• #1 in Measurement and Analytical Instrumentation
#1 in 28 Field Device Categories
Pressure Control Valves
• #1 in Final Control Temperature On/Off Valves
Level Valve Actuators
Coriolis Flow Liquid Analyzers
• #1 in Valves Ultrasonic Flow Vortex Flow
Magnetic Flow Gas Analyzers

• #1 in Flow Solutions
Software
#1 Advanced Process Control
• #1 in Plant Asset Management #1 Asset Management Software
#1 Loop-Tuning
#1 Simulation
• #2 in Distributed Control systems

“Emerson is the big global player in instrumentation…

everyone else is struggling…” – Honeywell Process Solutions
Former Employee
Note(s):
• Source: Company Investor Presentation and expert interviews 37
… and a Premium Climate Franchise

Emerson’s position in the Climate value …and has grown in-line with the
…and more commanding
chain affords higher margins and returns industry absent a regulation-driven
market share…
than OEM peers… destocking issue in 2016

25.0% Global Compressor Market Share (1)

22.9% 23.1%
21.3% 21.8%
20.8%

20.0% 7.0% 6.9%

Other Emerson
6.5%
50% 50% 6.1% 6.1%
5.8%
% Operating Margin

5.3%

% Organic Growth
15.0%

Global HVAC Equipment Market Share (1)

Goodman
10.0% 2.0%
9% Carrier
9%
1.0%

Trane
5.0% 8%
-0.1%
2014 2015 2016 2017 2018 Lennox
Other 5%
Emerson Climate Tra ine 66% 2014 2015 2016 2017 2018
JCI/York
Lennox UTX CC&S (2)
3% Emerson
EMR ClimateOrganic
Compressor Growth (2)
OrganicGrowth
JCI Buildings NA HVAC Industry Units (3)

Note(s):
1. HVAC industry estimates
2. From 2Q17 onward, growth rates based on Emerson’s Climate Tech revenue growth plus F/X rate 38
3. North America HVAC industry unit growth reflects Emerson’s mix of Residential HVAC and Commercial HVAC units
Despite a Best-In-Class Asset Portfolio, Emerson Is Trading Below Each
Relevant Peer in Each Relevant Segment…
Emerson’s consolidated EBITDA multiple of 10.8x is below that of its lowest multiple
segment which accounts for less than 15% of Emerson’s EBITDA

Automation Peers (60% of earnings) Climate Peers (27%) Tools Peer (13%)

16.0x 15.1x
14.8x
13.5x 13.8x
14.0x Average: 13.1x
13.4x Average:
12.0x 11.7x 12.6x
11.1x 11.2x 11.2x
10.8x

10.0x

8.0x

6.0x

4.0x

2.0x

0.0x
Flowserve Rockwell HoneywellROTORK Johnson United Ingersoll Lennox Stanley Black & Decker Emerson
Automation Controls Tech Rand (1) Int'l

Note(s):
• Source: Bloomberg
• Market data as of 9/26/19, one day prior to press reports of the D. E. Shaw group’s involvement with the Company
• All valuation multiples as based on 9/30/2020 metrics 39
1. Climate-only Ingersoll Rand valuation adjusted for spinoff and merger of industrial segment into Gardner Denver
… And the Recent Discount to Sum of The Parts Value is the Steepest it Has Been
Since Emerson’s Bid for Rockwell

Emerson has historically traded at a Sum of The Parts discount but is currently trading a standard
deviation below the average discount to its Sum of The Parts value at an 18% discount

105.0%

100.0%

95.0%
EMR / EMR SOTP %

90.0%

85.0%

80.0%

75.0%
Feb-16

Feb-17

Feb-18

Feb-19
Jan-16

Jun-16

Jan-17

Jun-17

Jan-18

Jun-18

Jan-19

Jun-19
Jul-16

Jul-17

Jul-18

Jul-19
Ma y-16

Ma y-17

Ma y-18

Ma y-19
Aug-16
Sep-16

Nov-16
Dec-16

Aug-17
Sep-17

Nov-17
Dec-17

Aug-18
Sep-18

Nov-18
Dec-18

Aug-19
Sep-19
Apr-16

Oct-16

Apr-17

Oct-17

Apr-18

Oct-18

Apr-19
Ma r-16

Ma r-17

Ma r-18

Ma r-19
Average STDev +1 STDev - 1 EMR/EMR SOTP STDev +2 STDev -2

Note(s):
• Source: Bloomberg
• Market data as of 9/26/19, one day prior to press reports of the D. E. Shaw group’s involvement with the Company
1. Peer group includes Lennox International, Rockwell Automation, Stanley Black & Decker, Ingersoll Rand, Honeywell, United Technologies, ROTORK, Johnson Controls and 40
Flowserve
THE D. E. SHAW GROUP’S PROPOSAL FOR CHANGE

41
The D. E. Shaw Group’s Proposal For Change Could Unlock Substantial Value
for All Emerson Shareholders

1 PURSUE OPERATIONAL ENHANCEMENT AND COST RATIONALIZATION PLAN AT EMERSON ELECTRIC

2 PURSUE A SEPARATION OF EMERSON ELECTRIC INTO A PURE PLAY INDUSTRIAL AUTOMATION

COMPANY (“AUTOMATION CO.”) AND A CLIMATE TECHNOLOGY-FOCUSED COMPANY (“CLIMATE CO.”)

3 IMPROVE CORPORATE GOVERNANCE AT EMERSON ELECTRIC

A. Move to annually elected directors
B. Align executive compensation with shareholder returns

42
P U R S U E O P E R AT I O N A L E N H A N C E M E N T A N D C O S T
R AT I O N A L I Z AT I O N P L A N AT E M E R S O N E L E C T R I C

43
1
Top-Down SG&A Benchmarking Suggests That Emerson Can
Reduce SG&A by Nearly $900 million Across Its Enterprise

Emerson has the opportunity to save nearly $900mm and increase EBITDA by
~24% if it reduced its SG&A levels to peer average levels in each of its business lines

30.0% Automation (60% Climate (27% of Tools (13% of

of revenue) revenue) revenue)

25.0%
24.5%

21.4%
20.7%
19.6%
SG&A % of Sales

20.0%

16.3%
15.0%

10.0%

5.0%

0.0%
Automation Climate Peers Tools Peers (3) EMR EMR
Peers (1) (2) Curre nt Optimized
Note(s):
• Source: Company filings, Bloomberg
1. Average includes Rockwell Automation, ABB, Flowserve, Honeywell and Siemens
2. Average includes Lennox International, Ingersoll Rand, United Technologies and Johnson Controls
44
3. Tools & Home Products peer is Stanley Black & Decker
1
Top-Down Margin Benchmarking in Automation Co. Suggests Emerson
Could Save Over $400 million
Emerson’s Automation Co. can achieve EBITDA
Reaching peer margins at Automation Co. would
margins of ~25% (21% operating margins) if it
increase EBITDA within the segment by nearly 20%
operates at the same profitability as peers
26.0% 3,000
25.5% 2,821

2,500 2,393

24.0%

2,000
EBITDA Margin %

$mm
Adj.
22.0% EBITDA 1,500
Margin(1):
21.7%
20.9%
1,000

20.0%

500

18.0% 0
Emerson Automation Co. Emerson Automation Co. Emerson Automation Co. Emerson Automation Co.
at Peer Margins 2018 EBITDA Pro Forma 2018 EBITDA
Note(s):
• Source: Company filings, Bloomberg
1. Adjusted to reflect eighty basis point charge from Emerson corporate center to Automation Co. 45
1
Bringing Corporate Expenses in-line with the Multi-Industrial Average
Could Increase EBITDA by $200 million

Emerson could save $200mm if it were to bring its

Emerson’s corporate expense as a percentage
corporate costs in line with the multi-industrial
of sales is nearly double the peer average
average

4.0% 700
3.6% 630
3.5% 600

3.0% 2.8% 480

500

2.5%
400

$mm
% of Sales

2.0%
1.6% 300 279
1.5%
200
1.0%

100
0.5%

0
0.0%
2018 Corporate 2018 Adj. Corporate 2018 Pro Forma
EMR 2018 EMR 2018 Adj. Multi-Industrial Peer
Costs Costs (1) Corporate Costs
Corporate Expense Corporate Expense Average Corporate
% of Sales % of Sales(1) Expense % of Sales
Note(s):
• Source: Company filings
1. Corporate expense adjusted to strip out one time purchase accounting and reflect $120 million quarterly corporate expense run-rate highlighted by Emerson management 46
1
Bottom-up Analysis of Emerson’s Expenses Reveals An Even Greater Savings
Opportunity of Over $1 Billion in Automation and the Corporate Center
EXPENSE ITEM DESCRIPTION & RATIONALE SAVINGS OPPORTUNITY
Corporate Center General • Substantial downsizing of aviation department and associated aircraft $200 million
& Administrative Expense • Eliminate excess corporate G&A activity and push remainder into operating units with a focus on duplicated HR,
Finance, Supply chain and Manufacturing headcount
• Better align executive compensation with shareholder returns
Automation Co. General & • Rationalize organizational matrix which currently includes regional, functional, operational and product lines $140 million
Administrative Expense and promotes replication of G&A functions (Finance/HR/IT/Legal/Admin) down to sub product level
• G&A functional costs exceed accepted median industry benchmarks by an average of 45%
• VP to Non-VP ratios (spans) exceed industry norms by >2x in every area
Automation Co. • Engineering replicated at front-line product levels with duplicated leadership resulting in peak staff in each $170 million
Engineering Function business line, limited sharing of resources and added product complexity
• Engineering should be moved up in the organization layers to a point where commonalities can be leveraged
(product level rather than sub product)
Automation Co. • Marketing occurs at three levels within the Company: Corporate level, Brand level (e.g. Rosemount) and $40 million
Marketing Expense product level (e.g. Rosemount temperature)
• “Marketing is repeated at every layer… they’re everywhere” – Former Emerson Product Manager
Automation Co. • Improve salesforce productivity and increase internal benchmarks $90 million
Salesforce Expense • Current sales per salesperson >50% below accepted industry standards
• 4-5 layers of salesforce with no direct tie to the product line P&L limiting incentive for rigorous sales expense
management and optimization
Automation Co. Indirect • Implement policy changes/controls to bring Emerson indirect spend levels in line with peers $190 million
spend (Travel/Facility/ MRO) • Rooftop consolidation initiatives (at least 22 locations have >1 rooftop and 11 have three or more)
Automation Co. Procurement • Procurement headcount is much larger than comparable procurement organizations $170 million
• “central sourcing added limited value at the brand level and many decisions on who to buy from and where were
made locally” – Former Product Manager
Automation Co. • Assess opportunity to accelerate consolidation of manufacturing sites. ~150 manufacturing sites (six in Houston $140 million
Manufacturing alone)

TOTAL: $1,140 MILLION

Note(s):
• Source: Company filings; proprietary analysis by leading consulting firm based in part on comprehensive review of publicly available headcount and salary data from online employment-oriented services that
covers over 80% of Emerson G&A employees and 90% of Emerson’s marketing employees; industry expert interviews; the D. E. Shaw group proprietary estimates; CEB and APQC published SG&A
benchmarks 47
1 Automation Co. G&A Expenses Provide an Illuminating Example
That Alone Could Save Emerson Roughly $140 million

Automation Company G&A resources appear to …leading to organizational spans that are
be replicated at every layer of the organization… substantially worse than industry norms…

1 CEO
Corporate
G&A

Automation Function
Co. President Execs COO
2
G&A CFO
presence CHRO
CIO
GC Site (Plant)
Brand President
GM
3
Substantial
G&A
presence Function VPs
VP of Finance
Product President VP of HR
4 VP of IT …and a substantial opportunity to reduce costs
Substantial
G&A Temperature VP of Legal and complexity by taking the following steps
presence
PULL FUNCTIONS UP 1-2 LEVELS IN THE ORGANIZATION (BRAND OR SEGMENT
LEVEL) SO THAT LOAD CAN BE BALANCED MORE EFFECTIVELY
Lower level G&A functions
G&A owned by site
REDUCE REDUNDANT RESOURCES
Functions (Operations) at
Sub-Product lowest level
Finance GIVE G&A EXECUTIVES OWNERSHIP OF G&A RESOURCES ENABLING THEM TO
5 President
HR MANAGE STAFFING LEVELS THROUGHOUT
G&A
presence IT
Temperature Legal GIVEN TARGETS TO G&A LEADERS AND TRACK MAINTENANCE
Sensors Admin G&A at the product level represents the
OF TARGETS
majority of Headcount and product leaders
own G&A activity, but not their cost
Note(s):
• Source: Company filings; proprietary analysis by leading consulting firm based in part on comprehensive review of publicly available headcount and salary data from online employment-oriented services
that covers over 80% of Emerson G&A employees and 90% of Emerson’s marketing employees; industry expert interviews; the D. E. Shaw group proprietary estimates; CEB and APQC published SG&A
benchmarks
48
1 Emerson Can Take Immediate Steps to Capture Savings

EMERSON CAN CAPTURE SUBSTANTIAL SAVINGS BY EXPLORING THE FOLLOWING AREAS:

1. Optimization of corporate overhead costs following separation of the Company into Automation Co. and Climate Co.

2. Simplification of organizational matrix within Automation Co. to limit duplication of G&A functions

3. Consolidation of engineering function

4. Enhanced salesforce productivity

5. Accelerate footprint consolidation initiatives

6. Downsizing of aviation department and associated aircraft

WE BELIEVE THAT EACH OF THE ABOVE STEPS IS MADE EASIER BY

PURSUING A SEPARATION OF EMERSON ELECTRIC INTO A PURE PLAY INDUSTRIAL
AUTOMATION COMPANY AND A CLIMATE TECHNOLOGY-FOCUSED COMPANY

49
 P U R S U E A S E PA R AT I O N O F E M E R S O N E L E C T R I C I N T O
A P U R E P L AY I N D U S T R I A L A U T O M AT I O N C O M PA N Y A N D
A C L I M AT E T E C H N O L O G Y- F O C U S E D C O M PA N Y

50
2
Emerson Would Unlock Value Through an Immediate Separation of Automation
Co. and Climate Co.

$mm Valuation Multiple Valuation

2020 Peer Best-in-Class Peer Best-in-Class
EBITDA(6) Average Peer Average Peer
Business Segment
Automation Company(1) 2,657 13.4x 14.8x 35,669 39,196

Climate Company(2) 1,697 12.2x 13.9x 20,689 23,567

Climate Technologies(3) 1,186 12.6x 15.1x 14,987 17,865
Tools & Home Products(4) 510 11.2x 11.2x 5,702 5,702
Corporate Expense & Other (269) 12.9x 14.4x (3,480) (3,875)
Stand-Up Costs(5) (61) 12.9x 14.4x (783) (872)

Total 4,024 12.9x 14.4x 52,095 58,015

(-) Debt (6,213) (6,213)
(-) Minority Interest (49) (49)
(+) Cash 1,603 1,603
Equity Value 47,436 53,356
S/O 615 615

Share Price $77.12 $86.74

Upside % 20% 35%

A breakup alone could generate ~$13/share - $23/share of incremental equity value for shareholders
(20% - 35% upside to Emerson’s current stock price)

Note(s):
• Market data as of 9/26/19, one day prior to press reports of the D. E. Shaw group’s involvement with the Company
1. Peer group includes ROK, FLS, ROR and HON
2. Climate Company comprised of Emerson's Climate Technologies and Tools & Home Products segments
3. Peer group includes LII, UTX, IR Climate and JCI
4. SWK used as primary pure play competitor
5. Standup costs estimated at ~$61mm based on break-up precedent data points
6. 2020 Emerson consensus EBITDA as of 9/26/2019 less estimated standup costs 51
2 Emerson’s Automation Co. and Climate Co. Have Limited End Market Overlap…

Emerson’s Automation Co. services … none of which overlap directly with Emerson
a wide array of end markets… Climate Co.’s served markets

Oil & Gas

Refining Residential Construction
Chemical Non-residential construction
Power Commercial Buildings
Life Sciences
Food and Beverage
Metals and Mining
?? Food Retail
Food Service
Transportation
Waste and Wastewater
Automotive Contractors
Industrial Machinery Homeowners
Packaging Cold Chain
Pulp and Paper

Note(s):
• Source: Emerson Investor Presentations 52
2 … And Limited Operational Synergy…

EMERSON’S AUTOMATION CO. AND CLIMATE CO. HAVE LITTLE TO NO OVERLAP ALONG THE
FOLLOWING FUNCTIONAL LINES LEADING TO LIMITED DIS-SYNERGIES FROM A SEPARATION:

TECHNOLOGY PLATFORMS / IT
• Limited underlying R&D and technology overlap
• Currently independent R&D

SUPPLY CHAIN
• Each division has adequate scale (~$12bn in Automation Co. sales and ~$7bn in Climate Co. sales)
• Limited supply chain overlap

MANUFACTURING FOOTPRINT
• Footprint not integrated

SALESFORCE
• Separate salesforce for each business segment

Note(s):
• Source: Interviews with former Emerson employees and proprietary research 53
2 … Yet Emerson Has Maintained Its Current Portfolio Structure…

Emerson’s perspective on keeping the

Reality
two segments together

1. Sharing of technology and best practices • “Sharing of best practices” is not a good reason to maintain a holding company
• “I still see a lot of integration capability, a lot of value-creation capability between the 2 corporate structure that costs shareholders anywhere between $14bn and $21bn of
businesses… So there's logic to have them together.” value
– David Farr, Emerson 2019 Analyst Day
• Conversations with former employees suggest that institutional silos prevent the
• “There's a lot sharing of information, technology, customer space going back and forth.
sharing of best practices between the segments
So it's -- there is still lot of capabilities for us to continue to leverage”
– David Farr, Emerson 2019 Analyst Day
• “The technology embedded in a lot of process instruments is technology that Bob can use
within their systems, too. Now it has to be, obviously, simplified, dumbed down a little bit
and also cheaper because it's a different application”
– David Farr, Emerson 2019 Analyst Day

2. Overlap between the two segments in Food & Beverage and • End markets highlighted by management make up less than 5% of revenue for the
Life Sciences end markets Automation Company
• “Same thing with the customers. We have several customers in particular around the food
and beverage, around the life science area. They're using -- will cross back and forth • Even within Food & Beverage, the Automation Company is servicing food
relative to the capabilities that we offer for our total solutions package” – David Farr, manufacturers while the Climate Company services food retail and food service
Emerson 2019 Analyst Day

3. Company has not reached a valuation point where the split is • Emerson’s discount to its sum of the parts value is over 20% today and provides a
compelling for shareholders compelling valuation justification to split the Company
• “As you know, we have always looked at businesses on ongoing basis, and when they
do peak in value, we will deal with that issue. I do not see that peak valuation in these 2 • Current Emerson shareholders will benefit from any future value creation
businesses right now.” generated by a spinoff
– David Farr, Emerson 2019 Analyst Day
• “Peak value” unlikely to be achieved in conglomerate structure

4. Emerson suggests leaving the decision to Emerson’s next leader • The succession decision should be driven by structure of the Company,
• “We note that Mr. Farr left the door open for a potential two-way split before his not the other way around
2021/2022 retirement, but his intention is to leave that decision to his successor.”
– RBC Capital Analyst
54
2 … Despite There Being Substantial Potential Benefits to Separation

IN ADDITION TO ENHANCED VALUATION BY POTENTIAL, WE BELIEVE SEPARATION COULD LEAD

TO ENHANCED OPERATIONAL PERFORMANCE DUE TO:

• Increased focus on distinct strategic priorities of each business

• Enhanced strategic optionality
• Enhanced financial flexibility to pursue market specific organic and inorganic growth opportunities
• Capital allocation and capital structure aligned with needs of each business
• Reduced complexity
• Reduction of costs and bureaucracy of holding company corporate structure
• Greater transparency and accountability to shareholders
• Compensation alignment

Separation is a means to an end to capture the complex operational enhancement and cost
rationalization plan in the D. E. Shaw group’s Proposal for Change

55
2 Even Emerson Management Has Made Strong Case For Separation in the Recent Past

Emerson’s comments during its 2015 Strategic Repositioning call make the case that Automation Solutions
are completely different businesses with different end markets that use different technology

EMERSON STRATEGIC REPOSITIONING CALL – JUNE 2015

Q: “So just stepping back, why did you stop at two segments and not go to even one?” – Bernstein Analyst
A: “Because these are two distinct end markets that we're looking at from a customer perspective, Steve. And from my perspective, the Process and
Industrial market, the technologies, everything you're dealing with, the channels are completely different than the Commercial and Residential
space that you go after. So it is a completely different segment from a market. That's how we look at it, from a market” – David Farr

Q: “Dave, I meant more, just thinking about Emerson as a continued, broader multi-industry company as opposed to focusing even further and separating out
climate or separating out the second market, the commercial and resi part” – Bernstein Analyst

A: “From my perspective, if I could just have one report set of numbers, I'd do that. But I think from my perspective I can rationalize and debate with
anybody. I look at the end markets, which I think are key issues and what investments and the strategies you look – they are run differently” –
David Farr

Note(s):
• Source: Company transcripts 56
2 Separation Would Create Leading Standalone Franchises in Automation and Climate

Automation Co. = “Best in Class” Process Automation Climate Co. = Climate Focused Industrial Business with
Franchise with a Growing Discrete Business commanding market share in HVAC Compressor

• Separation would create a best-in-class pure play automation asset • Separation provides investors access to Emerson’s high quality
with attractive characteristics Copeland compressor business without oil & gas end market
exposure
• Automation Co. would have unmatched scale: Emerson’s automation
business is #1 or #2 in every business in which it competes • Attractive characteristics of compressor business (~70% of Climate
• #1 in Measurement and Analytical Instrumentation Co.)
• #1 in Valves • Market Share: Emerson has high market share in HVAC
• #2 in Distributed Control systems compressor market
• Pricing Power: Highest value part of HVAC system
• Scarcity Value: Creates one of the only pure play industrial • Substantial Barriers to entry (Scale and Technology &
automation businesses of scale in the public market outside of Engineering)
Rockwell, Flowserve and ROTORK • Joint Venture with key OEM customers
• Replacement exposure: Less cyclical in downturn

• Tools business (~30% of Climate Co.) provides investors with

exposure to residential construction end markets

Key Automation Co. Stats Key Climate Co. Stats

• 2019E Sales: $12.2bn; #216 S&P 500 Rank by Revenue • 2019E Sales $6.2bn; #341 S&P 500 Rank by Revenue

• 2019E EBITDA: $2.5bn; #225 S&P 500 Rank by EBITDA • 2019E EBITDA: $1.6bn; #303 S&P 500 Rank by Revenue

• 58,000 employees; #126 S&P 500 Rank by Employees • 27,500 employees; #214 by S&P 500 Rank by Employees

57
2 Sell Side Analysts Agree That There is Value in a Separation

Morgan Stanley – September 2019 RBC – June 2019

Based on a SOTP analysis we see an $77 PT and 30% potential Our sum-of-the-parts shows a meaningful 18% implied upside at
upside to current levels this time, which we believe could trigger increased clamoring for such
a value-unlocking move

Credit Suisse – June 2019 Morgan Stanley – February 2019

Trading at a Discount to SOTP: EMR is trading at a 20% discount Sum of the parts provides ~20-25% upside: We don’t expect SOTP
on our sum-of-the-parts valuation construct… We do not see to be the dominant valuation methodology exiting the analyst day…
significant dis-synergies in a “breakup” scenario as there is modest what we do expect is that the discount to the sum of the parts
overlap between Automation and Commercial & Residential Solutions narrows as it becomes a more credible potential track for the
segments. company. CEO Dave Farr is unlikely to retire in the near future… we
would expect he leaves whoever the ascendant management is with
fewer difficult choices on managing a disparate portfolio. In this period
of deconglomerization, this is a well worn path

Barclays – December 2018 Gordon Haskett – October 2018

We think there is some possibility that the Company further simplifies its Split Emerson into 2 Companies: Strategically, we would support the
portfolio at some point given the lack of obvious synergies between separation of Emerson into 2 companies. There would appear limited to
the two remaining platforms no operational synergy between both divisions. On a sum-of-the-parts
basis, our analysis suggests $86 of value – representing 17%
upside from the current Emerson share price

58
2 Ingersoll Rand’s Decision To Spin Off Industrial Unit Provides a Blueprint

Ingersoll Rand’s management highlights

Ingersoll Rand outperformed the market and XLI by 8% the benefits of separation…
and 9%, respectively, in the three months following announced
separation of its Climate and Industrial assets
“As a pure play global leader in the climate control solutions
markets, we will… capitalize on global sustainability megatrends
15% that play directly to our strengths: reducing energy demand and
greenhouse gas emissions and improving efficiency in buildings,
homes and transportation. With greater focus, more targeted
10%
9.8% investments and a simplified business model, we believe our new
company will continue to drive above GDP growth and deliver value
5% for shareholders, customers and employees.”
– Michael Lamach, Ingersoll Rand CEO
1.9%

0% 0.8%
… and the market has rewarded Ingersoll’s
Climate assets with a higher valuation
-5% 14.0x 12.5x
12.0x 10.7x

2020 EV/EBITDA (x)

10.0x
-10%
8.0x
19

9
9

9
19

9
19

9
-1

l-1
-1

-1
-1

-1

-1

-1

-1

-1

-1

6.0x
r-

n-
ay

ay

ay

ay

un

ul

ul

ul
un

un
ay

Ju
Ap

Ju

-J

-J

-J
M

M
M

-J

-J
J

5-
-

12

19

26
7-
-

-
26

3-

4.0x
14

21

28
10

17

24

31

2.0x
Ingersoll Rand S&P 500 XLI 0.0x
Pre-Deal Climate Co. Valuation Current Climate Co. Valuation

Note(s):
• Source: Bloomberg and Company filings
• Market data as of 7/31/19 59
12
Combination of The D. E. Shaw Group’s Proposals Could Generate
Over $20 Billion of Incremental Equity Value For Shareholders…

Creation of two standalone companies that can each optimize its profitability and eliminate excess corporate
costs could generate over $20bn of equity value for shareholders and over 50% upside to Emerson’s stock price

$120.00

$100.00
$14

$5
$80.00
$18
Share Price

$60.00

$101

$40.00
$64

$20.00

$0.00
Current Price Automation Business Corporate Expense SOTP Valuation Upside(3) Pro Forma Share Price
Margin Uplift (1) Reduction (2)

Note(s):
• Market data as of 9/26/19, one day prior to press reports of the D. E. Shaw group’s involvement with the Company
1. Assumes Emerson Automation Co. captures entire $940 million of savings based on bottom analysis of Automation Co. expenses
2. Assumes Emerson corporate center cost reduced by $200 million informed by bottom-up and top down analysis
3. Assumes Emerson Automation Co. and Climate Co. trade in-line with selected peer averages
• Compounding / multiplicative impact spread equally across each of the three buckets of upside 60
12 … And Can Be Achieved with the Following Three-Step Value Creation Plan

Emerson should first simplify …which will facilitate achievement

the organization structure… of operational improvements

1. SEPARATE EMERSON ELECTRIC INTO AUTOMATION 2. APPROPRIATELY RATIONALIZE CORPORATE

CO. AND CLIMATE CO. TO FACILITATE OPERATIONAL CENTER AT EMERSON ELECTRIC FOLLOWING
ENHANCEMENT AND COST RATIONALIZATION PLAN THE SEPARATION

3. SIMPLIFY ORGANIZATIONAL MATRIX AND PURSUE

OPERATIONAL IMPROVEMENT OF KEY FUNCTIONS
WITHIN AUTOMATION CO.

• Limit G&A duplication

• Consolidation of engineering function

• Salesforce productivity

• Manufacturing

• Footprint consolidation

61
I M P R O V E C O R P O R AT E G O V E R N A N C E
AT E M E R S O N E L E C T R I C

62
3 Emerson Should Implement the Following Governance Measures

A. Emerson should move to annually elected directors B. Emerson should incorporate returns focused
with a simple change to its Bylaws targets in its performance plan

• Emerson’s Articles of Incorporation provide the By-laws with • Emerson’s current short-term incentive compensation is
the flexibility to adjust the following key items: fully discretionary
1. The term length of each class of directors
2. The number of classes with expiring terms each year • Emerson’s current long-term incentive structure is driven by
achievement of EPS growth (60%) and Free cash flow growth
• Language from the Articles of Incorporation:
(40%) targets, rewarding growth over returns
• “Except as otherwise provided in the By-laws with
respect to implementation of this Article 5, Directors shall • Emerson should incorporate targets that are tied directly to
be elected to hold office for a term of three years, with shareholder returns and will not reward the Company for value
the term of office one class expiring each year” destructive growth:
• Relative Total Shareholder Return
• Emerson’s Board should amend Company By-laws to shorten • Return on Assets
the term length of each Director from three years to one • Return on Invested Capital
year, with the terms of office expiring each year so all • Return on Tangible Capital
directors are up for election • Rockwell Example: “Performance shares are designed to reward
management for our relative performance compared to the
• Voting shareholders have shown overwhelming support (98%) companies in the S&P 500® Index over a three-year period. The
for proposals to de-stagger the Board and move to annually payouts of performance shares granted will be made based on our
elected directors. The proposed fix is an easy way to heed total shareowner return compared to the companies in the S&P 500®
shareholder concerns Index over a three-year period”

63
 E M E R S O N ’ S P E R F O R M A N C E C L E A R LY D E M O N S T R AT E S T H AT
CHANGE IS NEEDED

WE ARE COMMITED TO FOSTERING CHANGE FOR THE BENEFIT OF

ALL EMERSON SHAREHOLDERS

64