EMERSON’S investment bankers should take a leaf out of the late Bruce Wasserstein’s playbook. Bid ‘em up Brucie, as the Wall Street legend was known, would tell his clients they needed to up their bid to bring home the bacon.
With its current offer of 275p laughably low, Emerson would do well to heed such advice when it next moves on Chloride. It is clear what the more diversified American company would gain from the acquisition: greater presence in the European power supply space. Less so for Chloride shareholders, who know that the existing bid undervalues the company at around 24 times prospective earnings per share in 2011. After Chloride posted resilient full-year results despite the recession, its American suitor knows it’s time to bid ‘em up.
Historically, deals in the uninterrupted power industry have been brought in at around 30 times prospective EPS – working out at 340p in this instance. If Emerson were to offer that, Chloride shareholders would bite its hand off.
With the gloomy economic outlook in Europe, Emerson can afford to go lower – but not by too much. The magic number is about 300p a share, with a bit of a sweetener for the doubters.
If Chloride offers around 308p, it should be home and dry.