Emerson Strikes Out as Rockwell Automation Rejects Third Bid

(Bloomberg) -- Rockwell Automation Inc. spurned a third takeover offer from Emerson Electric Co., saying the sweetened bid of $29 billion doesn’t outweigh the risks in bringing together the factory-robot specialists.

The proposed merger would stunt Rockwell’s growth and “create a company that is not well-positioned to compete successfully in the evolving market,” the Milwaukee-based company said Wednesday.

“Bigger is not always better for driving growth and value creation,” Blake Moret, Rockwell’s chief executive officer, said in the statement. “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.”

The move “likely marks the end” of the talks between the companies after Rockwell rejected Emerson’s two previous tie-up proposals, said Sawyer Rice, an analyst with Morgan Stanley. 

Rockwell, which has attempted to move into the process automation area in which Emerson has a stronghold, has maintained that it is better off alone with its successful Logix product that gives customers a single software platform to build on instead of learning multiple ones.

Rockwell’s board was unanimous in its decision to reject a merger, according to its statement. Representatives of St. Louis-based Emerson didn’t respond to requests for comment.

New Suitors?

Other potential suitors may still be interested in Rockwell, Rice wrote in a note Wednesday, as he cut his price target for Rockwell to $194 a share from $204.

The company “remains an attractive industrial asset,” Rice said. “As the last standalone pure-play automation company of scale, other industrial CEOs who are looking for exposure to U.S. discrete automation need to take a hard look at the company.”

Rockwell slipped 1.2 percent to $190.74 at 9:53 a.m. in New York Wednesday, while Emerson rose 2.3 percent to $61.74. Rockwell has surged more than 40 percent this year, while Emerson has climbed about 10 percent.

Emerson is seeking to bolster its offerings by adding the leading supplier of software and controls for assembly-line operations. The software that Rockwell makes to run factory robots and other equipment would add to Emerson’s automation business, which is geared more to the oil-and-gas industry. 

A tie-up could have added heft after Emerson CEO David Farr trimmed almost a third of the company’s sales during a two-year restructuring process. He has been making smaller acquisitions, including a $3.15 billion purchase of Pentair Plc’s valves and controls business in April.

Emerson’s $225-a-share cash-and-stock proposal on Nov. 16 came after Rockwell rejected offers of $200 a share in August and $215 a share in October. The latest bid, which increased the cash component, would give Rockwell shareholders 22 percent of the combined entity, which Emerson said would have profit margins of about 20 percent and double-digit earnings growth.

In a letter to Rockwell’s board last week, Farr said “industrial logic for this combination is clear.”

Moret said Wednesday that the latest offer “undervalues” Rockwell, as subsequent stock movement puts the value at $218.48 a share.

To contact the reporter on this story: Richard Clough in New York at rclough9@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren, Tony Robinson

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