Emerson Electric Boosts Offer for Rockwell -- WSJ

By Dana Cimilluca, Andrew Tangel and Bob Tita Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 17, 2017).

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Emerson Electric Co. boosted its takeover offer for Rockwell Automation Inc., ratcheting up an effort to bring its reluctant rival to the negotiating table and forge a new giant in industrial automation.

Emerson sent a letter Thursday to Rockwell Chief Executive Blake Moret proposing a takeover at $225 a share, 60% in cash and 40% in stock for a total value of some $29 billion. Emerson disclosed the letter Thursday morning, confirming an earlier Wall Street Journal report.

It is St. Louis-based Emerson's third bid for Rockwell and compares with a $215-a-share offer put forward in October and one in August valued at $200 a share. Both were equal parts cash and stock.

The earlier overtures were met with resistance from Rockwell, which has refused to engage in negotiations, according to people familiar with the matter.

Mr. Moret, speaking at an investor meeting in Houston, said Rockwell's board would carefully consider Emerson's latest bid to see if it is in the best interest of the company and shareholders but declined to comment further.

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Emerson is hoping that the higher offer, with a greater proportion of cash, will be enough to convince Rockwell officials to sit down and talk -- either on their own or at the urging of the company's investors.

At least one investor expressed interest in seeing Rockwell seriously consider Emerson's latest offer, saying it was the company's duty to shareholders.

"You have a chance to at least explore and engage to see if there is a fit," said Alan Mitrani, managing partner of the hedge fund Sylvan Lake Asset Management in Northern New Jersey, which he said was a long-term investor in Rockwell.

Rockwell shares gained 2.6% to $193.61 on Thursday, while Emerson shares fell slightly to $59.02.

Emerson is pushing ahead with the bid because it believes that putting the companies together would create a new powerhouse in the production of equipment and software used to control automated manufacturing processes, a $200 billion global market. The combined company would have a market capitalization based on current values of more than $60 billion and about $23 billion in annual revenue, and potentially be in a position to better compete with European rivals like Siemens AG.

Automation systems broadly have been a sweet spot for industrial investment as customers look for more efficiency from existing plants and as manufacturing becomes evermore automated and digital.

Emerson estimates more than $6 billion of capitalized synergies from the potential deal, which it reckons is worth an additional $10 a share to Rockwell shareholders, according to the letter. The deal would add to adjusted per-share earnings in the first year, by Emerson's calculations.

The offer is at a relatively rich multiple of 21 times past earnings before interest, taxes, depreciation and amortization and represents a 30% premium to Rockwell's average share price in the 90 days leading up to when the pursuit became public Oct. 31.

The combined company would have an "automation center of excellence" in Milwaukee, where Rockwell is based. Emerson also indicated it is open to giving Rockwell officials important roles in the governance of a new entity.

The companies have complementary product lines and geographies, and Emerson believes that combining them would accelerate their growth. Rockwell's strength is in so-called discrete products used in areas including auto assembly, packaging and printing, while Emerson excels in so-called process control for power plants, oil-and-gas facilities and the like.

At Great Lakes Brewing Co., Rockwell hardware and software have helped employees in Cleveland focus on developing new types of beer, said John Blystone, electrical and controls supervisor for the brewer. "If you have them regulating temperatures in the tank farm 365 days a year, you're probably not going to have that person dreaming up the next, greatest IPA," Mr. Blystone said.

At iBio CDMO LLC, a Texas-based maker of vaccines and antibodies used to treat chronic diseases and cancer, Rockwell devices and software have helped reduce production costs and the amount of wasted batches. "We can make more products and make them more accurately," said Barry Holtz, the company's president.

Emerson and Rockwell's systems are increasingly used by the same customers. Combining the companies and integrating their product lines would appeal to customers looking to simplify factory control processes and eliminate the need for custom-built system interfaces, said Sandy Vasser, a retired electrical engineer for Exxon Mobil Corp. who has worked with both companies' automation systems.

"Both companies have similar challenges, but coming from different directions," Mr. Vasser said. "Emerson has been trying to scale down to smaller control systems. Rockwell started from small controls and they've been completing for larger plant systems."

Corrections & Amplifications Emerson Electric's latest offer to buy Rockwell Automation represents a multiple of 21 times past earnings before interest, taxes, depreciation and amortization. An earlier version of this story incorrectly said the multiple is 24 times. (Nov. 16, 2017)

Write to Dana Cimilluca at dana.cimilluca@wsj.com, Andrew Tangel at Andrew.Tangel@wsj.com and Bob Tita at robert.tita@wsj.com

(END) Dow Jones Newswires

November 17, 2017 02:47 ET (07:47 GMT)