Shares of industrial supplier Rockwell Automation Inc. (NYSE: ROK) jumped 12.7% in October, according to data provided by S&P Global Market Intelligence, after the company rejected multiple buyout bids from Emerson Electric (NYSE: EMR). Most of the pop happened on the final day of the month when Rockwell publicly rejected an offer of $214.50 per share, so management has confidence in the company's future.
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Rockwell is one of the best automation plays in the market today, which is why Emerson Electric was interested in the first place. But getting to a buyout price that made sense for both sides never happened, and Rockwell doesn't seem to have been interested in being acquired at all.
Given the $214.50 per-share bid that was left on the table, the question now surrounds what management will do to unlock value. Revenue and earnings have been flat over the last five years, so Rockwell will need to start showing growth to get a premium from investors. There could also be opportunities to find an even higher price from Emerson or another buyer, which would be the quickest way to unlock value.
Emerson was willing to pay a big premium for Rockwell given the fact that shares currently trade at 32 times earnings. That's the risk that I see for investors going forward. If Rockwell can't grow its business significantly, this could be a big lost opportunity to cash in, which is why I would be taking some chips off the table right now.
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