The hunt continues.
Milwaukee-based automation products manufacturer Rockwell Automation Inc. (ROK) rejected a $27.6 billion takeover offer made earlier this month by Emerson Electric Co. (EMR) , and company followers are confident that is the right move. The $215-per-share cash and stock offer follows a $200-per-share offer made Aug. 2 by Emerson, Rockwell said Tuesday.
"Emerson could have bid for Rockwell in the past (over the years) at substantially cheaper ROK valuation," Deutsche Bank analyst John Inch wrote in a Tuesday note. "In turn, we believe this begs the question—is something wrong at Emerson that could be compelling the company to pursue this aggressive and seemingly inconsistent strategy?"
Vertical Research Partners analyst Jeffrey Sprague agreed, claiming in a Tuesday report that Rockwell Automation has made a strong argument against the combination that goes beyond the valuation. Rockwell's stock closed at $183.27 on Oct. 9, the last full day of trading before St. Louis-based Emerson submitted its second bid. Emerson's revised offer represents a 17% premium to Rockwell's share price Oct. 9, but Rockwell's shares have soared this year, gaining 36% between Jan. 1 and Oct. 9.
"We do agree EMR needs ROK much more than ROK needs EMR," Sprague wrote. "In fact, ROK probably does not need EMR at all. We also agree that ROK has done a fantastic job on its own and see strong growth and high returns ahead."
Moreover, both Vertical Research's Sprague and Deutsche Bank's Inch see Emerson forcing Rockwell Automation's hand as a long shot.
"In terms of Rockwell, we believe the company has no intention of merging with Emerson for a variety of reasons," Inch said. "Nor do we believe that Rockwell feels compelled to seek an alternate suitor. Consequently, the chances of a hostile deal of this magnitude succeeding appear remote."
As TheStreet's sister publication The Deal reported last spring, Rockwell Automation has long been considered a takeover target by analysts, with Honeywell International Inc. (HON) being among the most likely suitors.
And various industrial manufacturing deals have made it across the threshold in recent months, particularly in the aerospace segment, where United Technologies Corp. (UTX) agreed to acquire airplane partsmaker Rockwell Collins Inc. (COL) for $23 billion in early September. Rockwell Automation and Rockwell Collins both came to be when Rockwell International was split.
But a deal between Emerson and Rockwell Automation doesn't make strategic sense to the target, Sprague wrote, as Rockwell argues the transaction could create commercial "dis-synergies."
"ROK argues its common platform is key to its commercial success and trying to combine that with EMR's multiple offerings would create customer disruptions and be expensive," he said. "ROK also argues that multiple platforms are exactly what customers don't want. We believe a migration path could be created, but also agree it could be expensive and fraught with execution risk."
Notably, Deustche Bank posited Tuesday that the move by Emerson could have more to do with personnel matters than a business agenda. Emerson chairman David Farr is "relatively close" to retirement, Inch said, pointing to when General Electric Co. (GE) attempted to acquire Honeywell in late 2000 because the buyer was running out of operation gas. GE's then-chairman and CEO Jack Welch was "perceived to have come to the end of his tenure" at the time, Inch wrote.
Editor's note: This article originally appeared on The Deal, our sister publication that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.
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