Rockwell defends standalone strategy in the face of Emerson bid
9 November 2017
Rockwell Automation Inc (ROK.N) Chief Executive Blake Moret said on Wednesday that he would stick with delivering the company’s factory automation equipment on one platform, reinforcing its rebuff of Emerson Electric Co’s (EMR.N) $27.6 billion takeover bid.
Moret’s comments offer the clearest indication yet that Rockwell has been resisting Emerson’s overtures not just because of disagreements over price, but also because of a different vision of how its business should be run.
“While we sometimes get caught up in looking at what pieces of the overall automation market can be used, what matters is the outcomes that you bring to a specific customer, and that specific customer is looking for a single platform,” Moret said on a call with analysts after the publication of Rockwell’s latest quarterly earnings on Wednesday.
Emerson’s strength is in process automation, helping factories in sectors such as mining and oil and gas operate more efficiently. Rockwell is a leader in so-called discrete automation, helping assemble component parts to manufacture items such as automobiles, household appliances and computer systems.
At the heart of the dispute is how effectively the two companies could be integrated. Emerson’s latest $215 per share cash-and-stock bid for Rockwell is based on estimated capitalized synergies between the two companies of around $6 billion, sources familiar with the matter have told Reuters.
Rockwell caters to its discrete automation customers using a programmable logic controller platform it calls Logix. It has been seeking to expand this control platform to process automation and cater to so-called hybrid customers using a combination of process and discrete automation.
Emerson uses a distributed control system platform for its process and hybrid automation customers called DeltaV. Should it acquire Rockwell, it plans to offer its Logix platform to customers alongside DeltaV.
“By leveraging the key technology platforms that are strengths of Emerson and Rockwell, where this technology can mutually coexist and thrive, we would create an industry leader, better positioned in an environment where the global customer base is asking for a more integrated solution in a process world and a hybrid world,” Emerson CEO David Farr said during his company’s earnings call on Tuesday.
Rockwell has argued that this approach could disrupt the business of some of its customers who want a single platform, and even cost it revenue. This is despite it previously having tried to challenge Emerson’s DeltaV by developing a similar distributed control system platform called PlantPAx, which never captured significant market share.
Rockwell has been gradually making progress in increasing its footprint in process automation, thanks partly to acquisitions, including a company called MAVERICK Technologies last year.
Rockwell’s process business revenue was up 9 percent year-over-year organically in the latest quarter and up almost 20 percent with the Maverick acquisition included, Moret said.
Based on Emerson’s latest bid, Rockwell shareholders would own about a quarter of the combined company. Rockwell has been apprehensive about accepting Emerson’s stock as a currency because of what it perceives as Farr’s poor track record of integrating acquisitions, sources told Reuters last week.
“Rockwell seems uninterested in engaging,” Vertical Research Partners LLC analysts wrote in a research note on Tuesday. “It has made arguments that a combination with Emerson will create dis-synergies, as channels are disrupted and control platforms would require migration.”
Emerson has not commented on whether it would make a new offer for Rockwell. Emerson shares ended trading on Wednesday down 0.9 percent at $65.52, valuing the company at $40 billion. Rockwell shares ended trading down 3.5 percent at $193.78, valuing it at $25 billion.
In its quarterly earnings on Wednesday, Rockwell forecast its fiscal 2018 adjusted profit to be $7.35 per share at the mid-point, below Wall Street estimates of $7.38 per share, according to Thomson Reuters I/B/E/S.
Rockwell’s operating margins fell to 17 percent in the fourth quarter from 19.8 percent a year earlier, hurt by its control products business.
Rockwell’s net income rose 10.5 percent to $204.6 million, or $1.57 per share, in the quarter ending Sept. 30.
On an adjusted basis, the Milwaukee, Wisconsin-based company earned $1.69 per share. Analysts on average had expected a profit of $1.73 per share.
On Tuesday, Emerson said adjusted net earnings per share for the fiscal year ending September 2018 were expected to be $2.85 at the mid point, compared with an average analysts’ estimate of $2.90 per share, according to Thomson Reuters I/B/E/S/.