Invensys Bidding May Yield Decade-High Price: Real M&A
Shares of the British industrial technology company have traded above Schneider’s informal offer of 505 pence a share during each of the last three trading days, indicating some investors may be wagering on a higher bid. An auction, which may attract Emerson Electric Co. and Honeywell International Inc. (HON), could drive the price to 550 pence or more, Royal Bank of Canada said. The stock hasn’t traded that high since 2003.
“We’re not selling our shares,” James Buckley, a London-based fund manager at Baring Asset Management Ltd., which oversees about $50 billion, including Invensys stock, said in a phone interview. “It has been linked with a number of other companies in the past. If you get a bidding war, then there’s always the potential for people to pay up.”
Emerson, which approached Invensys about a takeover last year, would be the most likely to counterbid for the maker of safety systems, controls and temperature gauges, Societe Generale SA said. Even without a higher offer, rivals may be able to top Schneider with an all-cash bid, which Invensys shareholders would likely prefer to the current cash-and-stock proposal, according to Citigroup Inc.
A representative for London-based Invensys declined to comment beyond the company’s statement last week disclosing Schneider’s bid. Anthime Caprioli of Rueil-Malmaison, France-based Schneider declined to comment on the status of negotiations.
Invensys serves a range of clients including oil refinery operators, mining companies and appliance manufacturers. It said July 11 after the close of London trading that it was in talks with Schneider about a takeover proposal that would value the company at about 3.3 billion pounds ($5 billion).
Invensys’ board is likely to recommend a firm offer at the proposed price, the company said. Under U.K. takeover laws, Schneider has until Aug. 8 to formalize its bid and could still walk away from a deal.
Shares of Invensys surged to a six-year intraday high of 517.50 pence after the company’s disclosure of the takeover talks. The stock closed at 440.10 pence on July 11, before the negotiations were announced.
Yesterday, after opening at 509.50 pence, Invensys ended at 502 pence.
Today, the stock rose 1 percent to 507 pence.
After the recent gain, Invensys has become overvalued and is unlikely to attract other suitors, according to a July 16 note from Makor Capital Ltd. and AIM&R. A higher bid would be difficult to justify and investors should sell their shares if the stock rises above the offer price, according to the note.
Still, counterbids can’t be ruled out and other companies may be able to win over Invensys shareholders by upgrading the structure, if not the value, of offers, Mark Fielding, a London-based analyst at Citigroup, wrote in a July 15 note. Investors would likely prefer an all-cash bid to the 319 pence in cash and 186 pence in new shares that Schneider is proposing, he wrote.
Invensys’ decision to announce the talks without Schneider’s consent signals that the target is trying to flush out more attractive offers, according to Alasdair Leslie, a London-based analyst at Societe Generale. Schneider later confirmed the talks in a separate statement.
“Clearly, if you’re selling an asset, you want to see if there’s anyone else that might be willing to offer more,” Leslie said in a phone interview. “There may be a few potential bidders.”
Emerson, a maker of air conditioner compressors and food-waste disposals, walked away from talks with Invensys about a possible deal a year ago. Since then, Invensys sold its rail unit to Siemens AG and pledged some of the proceeds to fund pension obligations that at one point were among the largest in the U.K.
The transaction made Invensys a more appealing target for Emerson, which would likely be lured by the company’s large customer base and software offerings, Leslie said.
“They were fundamentally interested in what now remains of Invensys, so it’s easier,” he said. “It would be an interesting asset for them.”
Mark Polzin, a spokesman for St. Louis-based Emerson, declined to comment.
Still, Emerson shareholders may balk at the prospect of a bidding war after a contest with ABB Ltd. (ABBN) drove up the price for its 2010 purchase of Chloride Group Plc, according to Christian Mayes, a St. Louis-based analyst at Edward Jones & Co.
“From Emerson’s point of view, I think the temptation could be there to look at it because it does fit into a couple areas that they want to grow in,” Mayes said in a phone interview. “The size of this deal may put them off from it.”
Honeywell and Zurich-based ABB also could be among companies interested in acquiring Invensys, said Andrew Carter, a London-based analyst at RBC. Buying the maker of meters and controls would add to their own process automation operations, he said in a phone interview.
Invensys could fetch 550 pence or more a share if an auction with “reasonable competitive tension” were to ensue, Carter and Wasi Rizvi wrote in a July 9 note.
Antonio Ligi, a spokesman for ABB, declined to comment on whether the company would be interested in buying Invensys, as did Rob Ferris, a spokesman for Morris Township, New Jersey-based Honeywell.
ABB, which is in the process of a management transition, may not be in a position to enter a bidding war for Invensys, said Andy Bell, a London-based analyst at Canaccord Financial Inc. Chief Executive Officer Joe Hogan, who is handing over the reins to Ulrich Spiesshofer in September, said in an interview published last month that the company needs to focus on integrating acquisitions it has already made.
Honeywell may struggle to justify the cost of an Invensys takeover, according to Bell. CEO Dave Cote said in February that the company would focus on deals of less than $1 billion because they are easier to assimilate.
Still, Invensys’ customer base is particularly valuable as the process-automation market consolidates and buyers may feel compelled to take advantage of the opportunity, Bell said.
“It’s all very well to go through the potential bidders and say they won’t do it because of ‘x’ or because of ‘y,’” he said. “But when you have an asset that’s as scarce as this that’s up for sale, sometimes longer-term strategy outweighs near-term considerations.”
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