Invensys Said to Weigh Options After Emerson Interest
Stock Chart for Invensys PLC (ISYS)
Invensys Plc (ISYS) said it received an exploratory takeover approach from Emerson Electric Co. (EMR) that failed to produce an agreement, as the British manufacturer’s units spanning rail signaling and metering draw interest.
The talks were “highly preliminary” and are no longer ongoing, the London-based company said in a statement today, responding to a Bloomberg News report yesterday about an approach. Invensys dropped as much as 18 percent in London trading, after surging the most in a decade yesterday.
Invensys has periodically been the subject of takeover speculation for a decade, having been linked to companies such as Siemens AG (SIE), Europe’s largest engineering company. While the company’s automation and railway products are attractive, Invensys bears the burden of one of the U.K.’s largest pension obligations, a liability a suitor would need to absorb or sell.
“Invensys could make sense for a number of people,” Brian Langenberg, an independent analyst who founded Langenberg & Co. in Chicago, said by phone prior to Invensys’s statement today. “It doesn’t surprise me that if it’s in play others are going to take a look.”
Emerson is chiefly interested in metering unit Foxboro, yet would consider a bid for the whole company to get the part it wants, said a person familiar with the situation yesterday, who declined to be identified as talks are private.
Interest in Units
Advisers to the British company have spoken to potential suitors including Siemens and General Electric Co. (GE) about a sale of some or all of its operations since Emerson’s approach, people familiar with the talks said.
Invensys, which can trace its origins back almost 200 years, isn’t currently running an official auction process to sell itself, said one of the people. It could decide to do so later, the person said.
While Emerson discussed the takeover of the group, other expressions of interest have been focused on specific units, Invensys said.
“The company regularly assesses the value of its portfolio of businesses both as part of its strategic planning process and in response to expressions of interest in relation to certain parts of the group,” Invensys said in the statement.
Invensys surged 28 percent to 257 pence at the close in London yesterday. That was the biggest one-day jump since 2001, according to data compiled by Bloomberg, and erased a drop of 3.8 percent this year through June 19. The shares dropped back 16 percent to 215.1 pence as of 2:34 a.m. today.
A deal for all or part of the company would build on industrial takeovers this quarter led by Eaton Corp. (ETN)’s $11.8 billion cash-and-stock agreement to buy electric distribution- equipment manufacturer Cooper Industries Plc. (CBE) ABB Ltd. (ABBN) also has said it’s seeking industrial automation targets.
Invensys hired Rothesay Life, a unit of Goldman Sachs Group Inc. (GS), last year to manage its pension plan and explore ways to separate the liabilities from the company, including a sale to insurers, one of the people said. The net pension liability was 426 million pounds in March, down from 467 million pounds a year earlier, according to Invensys’s latest annual report. Total pension obligations were 5.8 billion pounds as of March 31.
Competitive bids for the company may produce offers of about 350 pence per share, Paul Hopper, an analyst at Investec Bank Plc in London, wrote in a note. The valuation may rise further if the company is sold in parts, he said.
“It has long been mooted to be a break-up candidate but private-equity buyers, the natural facilitator of such a move, will have been put off by Invensys’ large pension plan,” Hopper said.
Emerson, a maker of power-plant and data-center equipment, has acquired 35 companies in the past decade, paying a median of 11.5 times earnings before interest, taxes, depreciation and amortization in deals where terms were disclosed, according to Heenal Patel, a Bloomberg Industries analyst in London.
In 2010, it beat Zurich-based ABB in a competition to acquire London-based Chloride Group Plc, Britain’s largest maker of gear to protect against power failures.
Invensys “would be a good business for Emerson,” said Langenberg, the Chicago-based analyst. “It would give them more customers and scale.”
Nick Heymann, a William Blair & Co. analyst in New York, said the pension overhang and loss of market share at Invensys make such a purchase less vital to Emerson than turning around its network-power unit, which has been a drag on earnings.
“I would tend to think this is more of a long shot for Emerson,” Heymann said in a phone interview before the Invensys statement. “You’ve got to fix network power before you add more and more.”
Chief Executive Officer David Farr has singled out the Embedded Computing & Power business, part of the network-power unit, as needing to improve or be sold. Emerson cut its 2012 profit forecast last month, saying China’s economy will remain “softer” than anticipated and that Europe’s slump persists.
Emerson fell 2 percent, the most since June 1, to $46.02 at the close yesterday in New York. The shares have dropped 1.2 percent this year.
Siemens’s main interest is in parts of Invensys, especially its rail unit, one of the people said. The engineering company, Europe’s largest, would be interested in a deal once Invensys offloads its pension liabilities, a person familiar with Siemens’s strategy said in August. Siemens has refrained from major purchases recently and is focused on internal growth.
Invensys’s predecessor, Siebe Plc, was founded by a German- born British engineer named Augustus Siebe in 1819. The company became Invensys following the acquisition of rival BTR Plc in 1999.
Its two biggest units now are rail systems and operations management, which sells technology to automate factories and industrial facilities and helps make them cheaper to run. The company also provides appliance and climate controls.
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