By Greg Roumeliotis
(Reuters) - Automation equipment maker Rockwell Automation Inc (N:ROK) said on Tuesday it had rejected an unsolicited acquisition bid from bigger rival Emerson Electric Co (N:EMR) for more than $27 billion, arguing that the offer undervalued the company.
The snubbed bid illustrates how Emerson CEO David Farr, who has been at the helm for 17 years and had previously indicated he would consider only small, bolt-on acquisitions, is now seeking a transformational deal to diversify Emerson's businesses and reduce their exposure to volatile energy prices.
Emerson's strength is in process automation, helping power plants and factories in sectors such as mining and cement operate more efficiently. Rockwell, on the other hand, is a leader in so-called discrete automation, helping assemble component parts to manufacture items such as automobiles, household appliances and computer systems.
Rockwell said it had rejected a $215 per share bid from Emerson, split in half in its consideration between cash and Emerson shares.
Rockwell shares gained 7.4 percent to close at $200.82 on Tuesday. They are up 46 percent year-to-date, versus a 16 percent rise in Emerson shares.
The rejection followed a previous Emerson offer in August that valued Rockwell at $200 per share, also split in cash and stock, Rockwell said.
Emerson confirmed the takeover approach, but said that no talks were currently taking place between the two companies and that it would remain a disciplined buyer. It would not comment on whether it planned a new offer for Rockwell.
Emerson shares ended trading down 4.3 percent at $64.46, giving it a market capitalization of $41 billion. Analysts said the company faced an uphill battle to clinch a deal with Rockwell.
"Rockwell probably does not need Emerson at all. We also agree that Rockwell has done a fantastic job on its own and see strong growth and high returns ahead. This does not mean a deal will not happen, but it feels like a long shot for Emerson," Vertical Research Partners analyst Jeff Sprague wrote in a research note.
One of Rockwell's attractions for Emerson is its advances in the so-called internet of things, or technology that allows different devices and systems to communicate with each other over the internet. While Emerson has been seeking to boost its software portfolio through acquisitions, it lacks the breadth of Rockwell's offerings that help industrial businesses connect their technology operations.
In its deliberations, Rockwell's board of directors expressed doubt about the value of the synergies in a tie-up with Emerson, and was apprehensive about accepting Emerson's stock as a currency given what it perceived as Emerson's poor track record of integrating acquisitions, two people familiar with the matter said on Tuesday. Rockwell is now focused on its standalone strategy, added the sources, who spoke on condition of anonymity because the discussions are confidential.
Emerson's last offer valued Rockwell at around 20 times its projected 12-month earnings before interest, taxes, depreciation and amortization, while Rockwell shares currently trade at 16 times, according to Thomson Reuters data.