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There is little comfort for Emerson Electric in the words of namesake and Transcendentalist funster Ralph Waldo Emerson: “To be yourself in a world that is constantly trying to make you something else is the greatest accomplishment.” That is a better endorsement of Rockwell Automation’s independence than it is of Emerson’s attempt to end it.
The failure of the $29bn deal is a warning to chief executives who might feel tempted, as Emerson’s David Farr was, to chase a transaction as a last hurrah late in their incumbencies. This only works with the balance of advantage in your favour.
Rockwell was able to rebuff Emerson’s public approach, which it raised three times, because investors were unconvinced of its merits.
Emerson’s final offer of $225 per share was 12.5 per cent higher than its first. It was also 38 per cent above where Rockwell stock was trading in August. But even after a tweak to the bid mix, two-fifths of the offer was in Emerson shares, not cash. Shareholders were right to prefer the stronger currency of Rockwell equity. Profits have been patchy at Emerson. They have been rising at Rockwell, which is better positioned to benefit from factory automation.
Mr Farr is in a spurned-but-strengthened mood, judging from an analyst call on Tuesday. That look suits singer-songwriters better than chief executives. A $1bn buyback does not dispel the whiff of desperation emanating from Emerson.
Rockwell, whose shares rose, is vulnerable to an all-cash bid. Emerson, having failed to become a scale consolidator, is exposed too.
One reason is the differing characteristics of its two divisions. The first is an automation business specialising in refineries and the like. The second, commercial and residential solutions, runs the gamut from air conditioning to food waste management.
Mr Farr may call this diversification. Others may see a break-up opportunity. Emerson has a forward earnings multiple in line with broader industrials. But the oil price rally has bolstered it. The automation unit would be worth more without its property-related appendage. The message of Emerson the company was: “Business as usual”. Emerson the poet had wiser words: “What lies behind us and lies before us are tiny matters compared with what lies within.”
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