Blaming the unwillingness of its target even to discuss a buyout, Emerson Electric Co. (NYSE: EMR) on Tuesday announced that it has withdrawn its unsolicited offer to acquire Rockwell Automation Inc. (NYSE: ROK) for $225 a share in a deal valued at nearly $30 billion.
Emerson can’t be faulted for not giving it the old college try. The company’s first offer, in August, was a cash and stock deal that would have paid Rockwell shareholders $200 in cash and stock.
The second offer, in early October, raised the offer to $215 per share, 50% in cash and 50% in stock. The third offer of $225 per share included 60% cash and 40% in Emerson shares was made on November 16 and rejected by Rockwell on November 22.
According to a letter from Rockwell CEO Blake Moret, his company’s board “unanimously determined” that the Emerson offer was not “in the best interests of Rockwell Automation and its shareowners.” Moret noted:
The value of your proposal is $218.48 per Rockwell Automation share based on Emerson’s closing share price on November 17, 2017. This represents only a 16.8% premium to the undisturbed Rockwell Automation stock price on October 30, 2017, the last trading day before the public disclosure of your prior proposals. The value of your current offer represents an increase of 1.6% over the headline value of your previous proposal dated October 10, 2017.
Moret’s arithmetic reflects an implied offer price of $135 per share in cash and of $90 per share in stock based on Emerson’s 30-day volume-weighted average price of $64.55 on October 30, which was valued at $83.48 per share based on Emerson’s closing price of $59.85 on November 17.
The letter also called into question Emerson’s ability to implement an acquisition of this size:
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. Your last hostile pursuit— Chloride plc in 2010— is a case in point, as Emerson subsequently wrote down that acquisition by $508 million, approximately one-third of the purchase price, and sold it for a substantial loss.
Ouch. Emerson responded Tuesday morning with a statement from CEO David Farr:
We are disappointed that the Rockwell Board refused even to discuss the potential combination of our two great companies. Instead of engaging in constructive dialogue, the Rockwell Board decided to let this unique and value-generative opportunity go unexplored. … [W]e plan to accelerate repurchases over the next month and buy back up to $1 billion over the next 12 months. We look forward to executing on this strategy to drive near- and long-term value creation for all Emerson stakeholders.
That promise pushed Emerson stock up more than 3% to around $63.82, in a 52-week range of $53.92 to $67.79. The consensus price target on the stock had been $63.21.
Rockwell stock traded up about 1.7% shortly before noon Tuesday, at $194.26 in a 52-week range of $129.66 to $210.72. The 12-month consensus price target on the stock is $187.93.