Smiths Group Share News (SMIN)

Tue, 29th Jun 2010 13:21

By Quentin Webb and Victoria Bryan

LONDON, June 29 (Reuters) - Spurned U.S. suitor Emerson Electric upped its cash offer for Chloride more than a third to $1.5 billion, seeking to tempt the British group away from a recommended $1.25 billion deal with Switzerland's ABB.

Shares in the UK maker of uninterruptible power supplies (UPS) were up 11.6 percent at 1204 GMT to trade above Emerson's sweetened offer, suggesting some think ABB could yet trump Tuesday's offer -- already $500 million above Emerson's original approach.

Emerson, a U.S. leader in the critical power market, is keen to grow in Europe and wring cost savings from a tie-up with Chloride, whose products protect against power outages at data centres, airports and hospitals.

In contrast, ABB is not already a player in the $8 billion UPS market, but is seeking to ally Chloride's products with its global reach and big industrial customer base.

Chloride said it would 'engage with Emerson to clarify certain aspects of its offer' before saying any more.

Under the earlier agreement, if Chloride tells ABB it has received a 'superior offer', the Swiss firm has 48 hours to match or better that proposal. ABB said it was considering its options and would say more in due course.

'Emerson is facing the prospect of a very powerful group, ABB, coming into one of its core markets and it will pay up to avoid that,' said David Stormont of Hermes Investment Management, adding Emerson was paying the price for an earlier 'lowball' offer. Hermes owns about 1 percent of Chloride shares.













COST SAVINGS

The new offer is equivalent to 30 times Chloride's forecast EPS for this year, according to data from Thomson Reuters StarMine, matching the highest takeout multiple in the sector.

Seymour Pierce analyst Ian Robertson said ABB's surprise bid, which could create a serious threat to Emerson's critical power business outside Europe, 'has pushed Emerson to pay ransom-strip prices for what is a relatively mundane business'.

Emerson, which makes industrial automation systems, said it targeted annual cost savings of at least 33 million pounds ($49.7 million) from a takeover, and possibly 'meaningful revenue synergies'.

Its latest offer of 375 pence per share in cash, compared to an earlier 275p, is being made through vehicle Rutherfurd Acquisitions. It is 15 percent above ABB's 325p offer.

The level of Emerson's offer raises questions over whether power equipment group ABB, a surprise bidder for Chloride, will be able to make a counter-offer.

When the Swiss group launched its agreed bid earlier this month, analysts suggested the price was already quite expensive.

Numis's Scott Cagehin said ABB should already have a very clear idea of what Chloride is worth, given it has access to the books, although the appetite of shareholders for such a move would have to be discussed.

Stormont at Hermes said: 'I wouldn't be surprised to see ABB coming back with another offer -- they have got very deep pockets, they have decided this is an area they want to enter and Chloride is a fantastic way of getting into that market.'

Another shareholder, Neil Hermon at Henderson, said there was a 'reasonable chance' ABB would return to the fray but it would have to offer at least 400p a share.

Shares in ABB were 3.2 percent lower by 1204 GMT at 19.39 francs.



BID BATTLES

London-based Chloride is led by Chief Executive Tim Cobbold, an accountant and qualified mechanical engineer, who became CEO in 2008, a year after joining the firm from an 18-year career at Smiths Group Plc.

The deal is one of the first formal bid battles over a sizeable UK public company since the credit crisis erupted, although rival suitors have shown informal interest in some big deals such as Kraft's purchase of Cadbury.

At the same time, two U.S. rivals are facing off over a smaller UK prize, engineering firm Scott Wilson Group Plc .

Emerson, led by Chief Executive David Farr, said it believed it made more sense for Chloride to become part of Emerson. But it cautioned the higher price it had to offer meant it could no longer guarantee the creation of more jobs in Britain.

Emerson is being advised by Greenhill and JP Morgan Cazenove, while Credit Suisse is advising ABB. Chloride's advisers are Citi and Investec.

(Additional reporting by Catherine Bosley in Zurich and Cecilia Valente in London; Editing by Jon Loades-Carter, Mike Nesbit)

($1=.6638 pounds) Keywords: EMERSON CHLORIDE/

(victoria.bryan@thomsonreuters.com; +44 207 542 9688; Reuters Messaging: victoria.bryan.thomsonreuters@reuters.net)

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