Rockwell Automation’s board has rejected a third takeover offer from St. Louis-based Emerson Electric Co., declaring the deal undervalued Rockwell, presented significant long-term risk and would not leave the combined company in a position to compete.
“Bigger is not always better for driving growth and value creation,” said Blake Moret, Rockwell president and chief executive officer. “While Emerson may see this proposed acquisition as necessary to enhance its growth and earnings potential and expand its capabilities in the industrial automation and information market, Rockwell does not.”
Emerson had proposed to buy Milwaukee-based Rockwell for $225 per share, $135 of which would have been cash and another $90 in Emerson shares. David Farr, Emerson chairman and CEO, had argued the merged company would have strength across the spectrum of automation applications.
After the second offer, Farr said the logic behind the deal was “very clear,” but also said the offer wouldn’t be made indefinitely without “a clear signal” that Rockwell was open to the deal.
Emerson did not immediately respond to requests for comment and had not responded on its website or in securities filings by late Wednesday morning. At least one analyst at Morgan Stanley said the rejection likely marked the end of Emerson’s bidding, according to SeekingAlpha.
The combined company would have been called “Emerson Rockwell” and Emerson projected it would have generated $6 billion in synergies. While the company would be headquartered in St. Louis, Emerson planned to maintain a “significant presence” in Milwaukee through the creation of a center of automation excellence.
Emerson also said it would use a “best of both” philosophy in choosing the management team. Moret’s change of control agreement with Rockwell meant he could have received at least $8.8 million if he’d lost his position as a result of the deal.
The $225 per share offer came after Rockwell rejected to previous bids, one at $200 per share and one at $215. Rockwell confirmed it had rejected the offers on Oct. 31 and has since stressed its confidence in its own strategy.
“Your proposed combination would dampen, not enhance, the ability to grow in the evolving industrial automation and information market,” Moret wrote in a letter to Farr rejecting the latest bid. “Unlike Emerson, Rockwell Automation is singularly focused on making investments in one platform to deliver value to customers. Rockwell Automation provides solutions across all industries, including process, hybrid, and discrete applications, on a single platform and in one software environment. This approach enables the simplification our customers tell us they need.”
Moret also said Rockwell is “experiencing great success” with its strategy, adding that being “a pure play, integrated business” offered substantial efficiencies over being a diversified manufacturer of commercial, residential and industrial products.
“When we talked in June, 2017 it was apparent that our companies were on very different paths,” Moret wrote.
He also took aim at Emerson’s proposed synergies describing the one-third attributed to revenue opportunities as “notoriously difficult to achieve” and “highly speculative.”
Moret added the cost synergies would require significant cuts that would end up being more expensive than Rockwell’s current strategy.
“The cost synergies assumed in your proposal would result in significant job cuts and would undermine the ability to attract and motivate employees who can execute a long-term strategy that is designed to deliver results for customers and value for shareowners,” Moret said.
He also pointed to the 2010 acquisiton of Chloride Group plc for $1.5 billion, described as Emerson’s “last hostile pursuit,” as reason to question the deal. Emerson eventually recorded a $508 million write off from the deal as part of a broader divestiture.
“We also lack confidence in Emerson’s ability to execute on an acquisition that is almost ten times larger than any prior Emerson acquisition, especially in light of Emerson’s M&A track record, which includes substantial write-offs from prior acquisitions, and an uncertain leadership succession plan,” Moret wrote
