Chloride knocks back Emerson's £723m takeover bid as too low
Tuesday 27 April 2010
The power supply protection group Chloride has rejected a £723m takeover bid from its US rival Emerson Electric as significantly undervaluing the company.
Chloride guarantees uninterrupted power supply for clients such as Heathrow's Terminal 5. Shares in the company shot up 42 per cent to 297p yesterday, after Emerson went public with the 275p-per-share cash approach it made on Friday.
Emerson says the offer represents a 34 per cent premium on Chloride's closing price and a 40 per cent premium on the three-month average. The combined group will create "a powerful force" in the global market, transforming Chloride from a regional to a global competitor, it says.
David Farr, Emerson's chief executive, said: "In a market where scale is increasingly important, we believe Chloride will be better able to compete long term with the benefit of the strength and resources of Emerson."
Chloride's management think otherwise. "The board of Chloride considers that this latest offer proposal from Emerson continues to significantly undervalue the company and accordingly rejects it," the company said.
Last Friday's bid was not Emerson's first. In 2008 Chloride also rejected a 270p offer as too low. Since then, the British group has continued to develop, giving the business "better prospects as a result of the steps that it has taken in this regard", according to the company. And, given that the offer is in dollars and the dollar has dropped since 2008, the latest offer actually comes in 15 per cent below to the previous bid.
Not only is the offer financially insufficient, but it was also considered rather rushed, say sources close to Chloride. Emerson approached on Friday, with a Sunday deadline. And although the board warned that an informed response would not be possible in just two days, over the weekend, Emerson nonetheless went public yesterday morning without any warning.
But Emerson defends its approach on the basis of the previous discussions with Chloride, which "became prematurely public and never achieved any meaningful level of engagement or consideration". "In light of the 2008 events and in order to allow Emerson to directly engage with Chloride's shareholders and other stakeholders, Emerson has decided to make its current indicative proposal public," the company said.
The market is not expecting the story to end here. "Strategically, this deal makes sense," Scott Cagehin, at Numis, said. "We believe this bid will support the share price at around 300p given the possibility of an increased offer or perhaps a counter offer from another major player such as Eaton Corporation."
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