Emerson Electric Co. boss Dave Farr says he’ll rebuild his company in smaller steps after giving up on his $29 billion bid to buy Rockwell Automation Inc.
Focusing on more modest targets is Plan B for the frustrated chief executive officer, who had hoped to achieve his goal of dominating the factory-efficiency market with one big, bold acquisition. Rockwell Automation, which has dramatically outperformed Emerson this year in the stock market, rejected his offer even after he sweetened it twice.
“Clearly the Rockwell opportunity is dead and we’re moving on,” Farr said Tuesday on a conference call with analysts. “We want to be a broad automation-solutions house.’’
He vowed to forge ahead with internal investments, partnerships and acquisitions to broaden the company’s expertise in automation. Emerson mostly serves the process side of the business, providing software and equipment for products made by combining ingredients, such as chemicals, pharmaceuticals, beverages and oil derivatives. Rockwell is the leading supplier of controls for assembly lines.
Emerson’s decision concluded a campaign that became more aggressive earlier this month, when the St. Louis-based maker of manufacturing software and equipment released its third offer on the same day that Rockwell was scheduled to address investors. Rockwell rejected the proposal last week, saying Emerson’s sweetened $225-a-share bid in cash and stock didn’t outweigh the risks in bringing together the automation companies.
Emerson jumped 3.2 percent to $63.84 at 11:50 a.m. in New York, the most intraday in more than five months. Rockwell rose 2 percent to $194.96. Its shares have climbed three times as much as Emerson’s this year.
“We liked seeing Emerson’s aggressive push for this strategic asset,” Deane Dray, an analyst at RBC Capital Markets, said in a note to investors. “We also commend Mr. Farr for not chasing Rockwell beyond the already lofty implied valuation.”
Emerson is getting a good start with a “back to basics” message, said Cowen & Co. analyst Gautam Khanna, who raised his rating on Emerson to outperform from market perform.
Rockwell, based in Milwaukee, has maintained that it’s better off alone with its successful Logix product that gives customers a single software platform to build on. In his rejection of Emerson’s third offer, Rockwell CEO Blake Moret last week said that a combination would result in a “weakened position and dis-synergies.”
Shareholder Support
“We thank our shareowners for their input and support,” Rockwell said in an emailed statement Tuesday. “The Rockwell Automation board and management team are committed to the execution of our strategy, which we are confident will continue delivering extraordinary shareowner returns.”
Farr, 62, has had his eyes on Rockwell for years. The acquisition would have helped him rebuild Emerson after he was forced to restructure two years ago by shedding a computer power-equipment business that he built over his 17 years as CEO. The unit had come under pressure from Asian competition and was dragging on Emerson’s profits. As a result of the restructuring, Emerson’s annual sales dropped to $15.3 billion from $24.5 billion in 2014.
Farr on Tuesday pledged to increase Emerson’s position in assembly-line automation, citing his experience in building the process-automation unit from the eighth-largest in the industry in the 1990s to become the biggest.
Moving Aggressively
“We’re going to move forward aggressively,’’ he said. “We’re going to build this out just like we did back in the ’90s when we were a minor, minor, minor player in the process world.’’
Emerson will make investments internally, form partnerships and snap up smaller companies in deals ranging from $250 million to $1 billion each, he said. There may even be opportunities to buy businesses from General Electric Co., Farr said.
GE is shedding at least $20 billion of assets as new CEO John Flannery reshapes the portfolio in an attempt to pull the manufacturer out of a slump. GE has said it would explore options for its lighting and locomotives operations but didn’t detail all of the planned divestitures.
Farr dashed analyst speculation that Emerson may split off the Commercial & Residential Solutions unit, which makes products ranging from garbage disposals to air-conditioner compressors. Emerson will continue to make acquisitions in the residential business, which accounts for 39 percent of Emerson’s sales. The unit will close an acquisition of more than $200 million in about a month, he said.
“We have no interest in changing this platform structure over the next several years,” he said. “We have our two strong platforms and we like where we are at this point from the growth opportunities.”
--With assistance from Richard Clough
To contact the reporter on this story: Thomas Black in Dallas at tblack@bloomberg.net.
To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson, Susan Warren
©2017 Bloomberg L.P.
