Rockwell Automation rejects $27.6-billion offer from Emerson

By Thomas Black on 10/31/2017

DALLAS (Bloomberg) -- Rockwell Automation Inc., a major supplier of robotics software, rejected a $27.6-billion offer from Emerson Electric Inc., which is trying to rebuild following a restructuring.

Rockwell rose the most in eight years on reports of the offer, then pared the gains after the companies said discussions have ended. While the Emerson deal is off, the news stirred talk among analysts that Rockwell could be a coveted industry takeover target.

The offer may inspire other suitors, including Honeywell International Inc., said Scott Davis, an analyst with Melius Research. Rockwell is desirable for its focus on making software and equipment used to control robotics and other automated systems in factories.

“We’d expect others to jump in,” Davis said. “It’s the best pure-play automation asset in the world right now.”

Emerson’s unsolicited bid of $215 a share, half in cash and half in stock, wasn’t in the best interests of shareholders, Rockwell said in a statement Tuesday. The company, which had a market value of $24 billion as of Monday’s close, said it also reviewed and rebuffed an earlier, lower offer by Emerson.

The board “is confident in the company’s strategic direction and our ability to continue delivering superior levels of growth and value creation,” said Blake Moret, Rockwell’s CEO.

In a separate statement, Emerson said Rockwell’s rejection had ended talks between the companies.

Rockwell may be difficult to purchase because of its rich valuation. The offer price was 28 times earnings at Monday’s close, compared with 21 times for the Standard & Poor’s 500 Industrial Index. Renewed sales growth and higher capital spending is giving Rockwell a boost as manufacturers seek to spend on automation to increase capacity and efficiency. The stock had surge 39% this year, compared with a 15% gain for the S&P industrial gauge.

Hostile prospects

“Investors openly question whether Emerson has the wherewithal to fund the deal,” Robert McCarthy, an analyst with Stifel Financial Corp., said in a note. “We think it is doubtful Emerson launches a hostile bid.”

Rockwell shares were up 6.6% to $199.36 at 11:26 a.m in New York, after jumping as much as 13%, the most intraday since April 2009. Emerson fell 2.8% to $65.44.

The move to pursue Rockwell is part of Emerson CEO Dave Farr’s strategy of rebuilding his company after shedding underperforming businesses. The software that Rockwell makes to run factory robots and other equipment would add to Emerson’s automation business, which is geared more to the oil-and-gas industry. 

“It would be a dream for Emerson to own it,” said Davis, the Melius analyst. Rockwell “fits perfectly, lots of synergies.”

Farr has been making smaller acquisitions. Emerson completed a $3.15-billion purchase of Pentair Plc’s valves and controls business in April. It agreed on Oct. 16 to pay $510 million for Paradigm, an oil-and-gas industry software company, and earlier this month bought GeoFields Inc., which collects data on pipeline integrity.

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