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Emerson said that it would seek small bolt-on deals alongside a $1bn share buyback instead, after shareholders supported the Rockwell board’s opposition to the deal.
Emerson’s approach was an attempt to reshape the fast-changing industrial automation industry, which is being transformed by technologies including low-cost connected devices, advanced data analytics, and augmented and virtual reality.
Rockwell has been at the forefront of that shift, helping to push its shares up by 197 per cent over the past ten years. Emerson has a strong automation division, but also has other more traditional business lines including thermostats, refrigeration and air-conditioning. Its shares have risen just 17 per cent in the past decade.
Emerson went public with its bid in October, and last week raised its offer slightly and boosted the cash component, but Rockwell’s board has continued to reject the approach. Rockwell issued a statement on Tuesday morning thanking its shareholders for their “input and support”.
Dave Farr, Emerson’s chief executive, told analysts on a call on Tuesday that he believed its offer, which was about 60 per cent in cash and 40 per cent in shares, was “a very good proposal for Rockwell relative to shareholders” but it was “time to move on”.
Emerson tried to meet and talk on the phone with Rockwell’s senior management to explain the rationale for a deal, but was never given the opportunity to do so, said a person close to the company. He added that this showed that Rockwell’s management was opposed “for social reasons not strategic ones”.
However, Rockwell‘s board said last week that it had rejected the bid on the grounds that it undervalued the company, created long-term risks for shareholders, and would “create a company that is not well-positioned to compete successfully in the evolving market.”
Several analysts had raised questions about the industrial logic of the deal. Rockwell is strongest in discrete manufacturing for industries such as car manufacturing, while Emerson is strongest in process industries, including oil and gas.
The two companies also use different software platforms, which would have had to be run in parallel by the merged group.
Sawyer Rice, an analyst a Morgan Stanley, wrote in a note last week that “the combined company would be less competitive”, and Emerson was “understating investment needed and overstating revenue synergy opportunities”.
Vertical Research Partners argued that Emerson needed Rockwell more than Rockwell needed Emerson.
Rockwell’s shares rose by about 2 per cent on the news that the bid had been withdrawn. Analysts have suggested that other companies interested in strengthening their automation businesses, including ABB and Siemens, could make bids.
Shares in Emerson increased by 3.1 per cent.
There was also speculation among analysts that Emerson might now think about a break-up. Craig Resnick of ARC Advisory said: “If Emerson was a pure-play industrial automation company, I think its share price performance would be stronger. The automation business is a great place to be at the moment.”
Speaking to analysts, however, Mr Farr rejected the idea of a break-up, saying Emerson’s board had reviewed the portfolio two and a half years ago and “feels very strongly that we can build off these two platforms” of automation and equipment for buildings.
He added that among its planned bolt-on acquisitions, Emerson would “clearly be interested in looking at” some businesses that could be sold by General Electric, which has announced a $20bn disposal programme to simplify its structure.