By Zak Goldberg
Business acquisitions and mergers can help small companies to grow and larger firms to diversify their propositions. Such deals are at the centre of every successful economy, while they also help to maintain the value offered by progressive markets such as the tech sector.
These agreements often involve prolonged periods of negotiation, however, particularly when the two parties begin to discuss sensitive issues such as share prices, company infrastructure and bottom line valuations.
This is certainly the case at present, as automation equipment maker Rockwell recently rejected a $27 billion acquisition offer from its larger rival Emerson Electric Co. As talks rumble on, we ask whether the deal is likely to go ahead, and if so, how easy will it be to agree on terms?
Rockwell in a good position to negotiate?
In some respects, a merger between Rockwell and Emerson makes perfect sense. After all, Emerson would benefit from access to relevant and cutting-edge automation technology while also reducing their exposure to volatile energy prices. Conversely, Rockwell would be able to significantly boost their status and achieve growth levels that put them on a par with some of their industry rivals.
However, Rockwell has now rejected two bids from Emerson, arguing that the latest offer of $27 billion (or $215 per share split between cash and equity) seriously undervalued the company. Not only this, but the dynamics of the deal have also been altered by the recent gains showcased by Rockwell stocks, which have risen by 46% year-on-year versus the 16% growth reported by Emerson.
There is also a sense that Rockwell has less of a need to enter into an agreement with Emerson, thanks to the niche that they have carved in applying the Internet-of-things (IoT) to various automation processes.? This is technology that Emerson is keen to leverage, as it would allow them to diversify their interests and connect their operations in a seamless and more efficient manner. So, unlike with many acquisitions, the buyer has a more pressing need to complete the deal than the company that they are looking to procure.
Can a deal be easily done?
Given these dynamics, Emerson faces an uphill challenge if they are to complete the acquisition at a price they are comfortable with. Even if the brand returns with an improved offer, Rockwell is under no obligation to accept and remains in a position where it can hold out for its desired valuation.
This does not mean that Rockwell is opposed to continuing the negotiation and completing the deal, but it does suggest that some form of arbitration may be required to achieve this objective. This is always required in instances where a motivated buyer and seller cannot agree on a valuation, as arbitration helps to strike an amicable compromise that facilitates a deal.
With Emerson?s latest bid having been rejected out of hand, it is increasingly likely that this type of mediation will be crucial if the deal is to ultimately get over the line.
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