Emerson Electric Company
14 Pages Posted: 21 Oct 2008
In the mid-1980s, Emerson Electric looked at possible two-year debt issues in three countries: the United States, Switzerland, and New Zealand. The $65 million to be raised is earmarked for general corporate expenses. Emerson has subsidiaries in 27 countries, including the three candidate countries. In this case, students act as Emerson's CFO and must evaluate the U.S., Swiss, and New Zealand economies to determine in which currency to secure the needed debt issues.
EMERSON ELECTRIC COMPANY
W. F. Bousquette, Emerson Electric Company's chief financial officer, was developing a plan for his company's financings in the spring of 1987. He was considering a range of financing tactics, including three possible two-year debt issues. Management wanted to raise $ 65 million to finance general corporate activities. The AAA-rated company could issue a domestic bond with a coupon rate of 8.65%, a Swiss Eurobond with a 4.58% coupon rate, or a New Zealand Eurobond with a coupon of 18.55%. The relative attractiveness of each of the issues depended on expectations about the three countries' economies and Emerson Electric's international net asset and economic exposures.
Emerson Electric Company was founded in 1890. By 1986, it had 50 operating divisions that manufactured a broad range of electrical and electronic products and systems. The company had 185 subsidiaries in 27 countries; seven subsidiaries were located in Switzerland, and one was in New Zealand.
Emerson Electric's sales had almost reached the $ 5 billion mark. Over the past three years, the company's international sales, including exports, had risen from $ 883 million to $ 1.1 billion. Over the same period, the company changed its strategy from exporting to offshore production; the number of offshore plants increased from 50 in 1981 to 82 in 1986. Reflecting this trend, as shown in Exhibit 1, total foreign assets increased from $ 458 million to $ 813 million between 1984 and 1986; net foreign assets increased commensurately, from $ 220 million to $ 376 million. Sales of products manufactured by foreign subsidiaries rose from $ 539 million to $ 861 million. Corporate management believed Asia was the best source of future sales growth.
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Keywords: economic analysis, financial planning, financial policy, international finance, liability management, international case, diversity case, international
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Emerson Electric Company
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