Emerson Really, Really Wants Rockwell Automation
On Nov. 16, Emerson (EMR) upped the ante by making a third unsolicited offer to buy Rockwell Automation (ROK) for $225 per share (60% cash/40% stock). This equates to over $28 billion of enterprise value, or an eye-popping almost 19 times the consensus estimate for Rockwell’s 2018 EBITDA. Emerson’s latest proposal asserts that nearly $6 billion of capitalized synergies could be generated from the deal, with a third derived from revenue synergies and the remainder from cost savings. Much like the rationale for acquiring Pentair’s valves and controls, Emerson believes that the combined entity would be better equipped to bid for the larger-scale automation projects that Emerson favors. Furthermore, Emerson’s leadership in process automation, combined with Rockwell’s leadership in discrete automation, would combine the two wide-moat companies into a truly hybrid, global player.
The strategic rationale is sound, and we believe that industrial automation is an attractive secular growth story. That said, we remain skeptical that Emerson’s shareholders will benefit from a rich offer, and think that much of the value created from a tie-up will accrue to Rockwell’s shareholders. We expect that Rockwell’s board has some serious consideration to do at these levels, given the juicy 30% premium to Rockwell’s undisturbed share price and over 60% premium to our fair value estimate. Rockwell has always valued its independence, and would likely bristle at the proposed “Emerson Rockwell” name. We’re not entirely convinced that granting board representation and the creation of an automation center of excellence in Rockwell’s home town of Milwaukee will assuage Rockwell’s concerns of a culture clash, should the tie-up proceed. However, every company has its price, and Emerson’s latest aggressive offer could be coming close.
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