Why Rockwell Is Right To Reject Emerson’s Takeover Attempts

After Emerson Electric Co.’s (EMR – Free Report) third takeover bid for automation products manufacturer — Rockwell Automation Inc. (ROK – Free Report) — was spurned by the latter last week, we believe it might be prudent for Emerson to completely abandon its suit. In fact, Emerson’s shares had risen 2.5% in the aftermath of the rejection, as investors’ concerns about an expensive deal that would overstretch Emerson’s finances eased.

Let’s discuss the reasons why a deal between the two would, more likely than not, be a debacle, after we touch upon the relatively few arguments in favor of the same.

“For” the Deal

Emerson is seeking to bolster its offerings by adding the leading supplier of software and controls for assembly-line operations. Doubtlessly, the deal would have added heft after Emerson’s CEO slashed almost a third of the company’s sales during its two-year restructuring process. To that end, it has been making smaller, bolt-on acquisitions, including a $3.15-billion acquisition of Pentair’s valves and, controls business in April.

Similar to the rationale for buying Pentair’s valves and controls unit, Emerson believes acquiring Rockwell Automation would help equip it better to bid for larger-scale automation projects. Emerson’s process automation prowess and Rockwell Automation’s leadership in discrete automation would, no doubt, result in a truly hybrid, global player, and also a leader in the $200-billion global automation market.

Emerson also believes the deal will create $6 billion in capitalized synergies, of which about a third would come from sales synergies, with the rest coming in the form of cost synergies.

Rockwell Automation’s stock price has raced much ahead of Emerson in the past year. While Emerson has risen 13.2%, Rockwell Automation’s shares have soared a whopping 46.7% during the same time frame.