2nd UPDATE: ABB Bids For UK's Chloride As Spending Spree Continues
08 Giugno 2010 - 3:08PM
Dow Jones News
Power and industrial automation company ABB Ltd. (ABB) Tuesday
extended a recent acquisition spree by launching a GBP890 million
bid for Chloride Group PLC (CHLD.LN), potentially triggering a
battle for the British company with Emerson Electric Co. (EMR) of
the U.S.
ABB's bid for Chloride, which makes systems to protect customers
from power surges or failures, means the Swiss company has set
aside over $3 billion for acquisitions in recent weeks after a
decade of avoiding major acquisitions, and is still looking for
more targets.
It acquired U.S.-based Ventyx, which makes software for the
energy sector, for more than $1 billion earlier this month, and
last month said it will spend about $965 million to raise its stake
in its Indian subsidiary, ABB Ltd. (India) (500002.BY) to 72% from
52%. It also bought U.S. measurement product maker K-TEK for an
undisclosed price.
The change in acquisition strategy had been expected after Chief
Executive Officer Joe Hogan two years ago replaced Fred Kindle, who
was forced to leave the company after a dispute with the board over
the company's strategy. Hogan, a proven deal maker, joined from
General Electric Co. (GE), but his first moves were to react to the
economic downturn by cutting costs and steamlining the company's
businesses in Europe and the U.S.
Kindle's caution over acquisitions followed a difficult period
for the company. ABB was brought to the brink of bankruptcy in the
early 2000s due to lingering asbestos liability claims and due to a
huge debt pile it built up during a major acquisition push in the
late 1990s. It settled asbestos claims filed against its U.S.
subsidiaries four years ago and also sold some businesses to help
reduce debt.
In recent years it has built a large cash pile, leading
investors to call for a new strategy on acquisitions.
A successful acquisition of Chloride would still leave ABB with
about $3 billion in net cash, after paying dividends, and the
appetite for more deals, Chief Financial Officer Michel Demare
said.
"This does not temper our ambition to look for more
value-creating acquisitions in the future, even larger ones than we
have done so far," he said, adding that the company wouldn't
threaten its investment-grade credit rating.
However, ABB's cash bid for Chloride, which has been backed by
the British company's board, faces competition from Emerson
Electric, which has been pursuing the U.K.-based company and two
months ago had a GBP723 million, or 275 pence a share, bid rejected
because it was deemed too low.
Emerson Tuesday said it is considering its position on Chloride
and will make an announcement in due course.
Hogan said ABB had been talking to Chloride about a potential
collaboration for roughly 18 months, but intensified the talks when
Emerson bid for Chloride.
"Obviously, Emerson putting them into play forced us to move
faster than we would have, but we had been talking to them for some
time," Hogan said.
Chloride's shareholders will receive a 3.3-pence-a-share final
dividend, as proposed by Chloride last month, as part of the
takeover offer, ABB said.
The ABB CEO didn't rule out going higher to clinch at least 75%
of Chloride, but said it felt it had "put a good offer on the
table" with its 325 pence-a-share bid.
Chloride's shares shot higher after ABB's bid, which was 12%
higher than Chloride's 289 pence closing price Monday and was
deemed at the upper end of what is economically justifiable by
several analysts.
At 1321 GMT Tuesday, Chloride's shares were trading up 53 pence,
or 18.5%, at 342 pence, the biggest gain on London's FTSE 250
mid-cap index and outperforming a 0.03% fall in the Stoxx Europe
600 industrial good and services index. Meanwhile, ABB's stock
traded up CHF0.12, or 0.6%, at CHF19.34.
ABB is after Chloride's uninterrupted power supplies business,
especially in the medium- and high-power segment of the market,
where ABB sees growth opportunities. Other potential rivals for
Chloride could include Schneider Electric SA (SU.FR) and Eaton
Corp. (ETN). Schneider and Eaton declined to comment.
Analysts generally welcomed ABB's bid, but cautioned on the high
price.
"In our view, the key issue for investors will be the conference
call and the extent to which ABB can illustrate credible revenue
and cost synergies, and remove any potential concerns that it could
be over-paying for this deal," Goldman Sachs analyst Tim Rothery
wrote in a note to investors. Goldman ranks ABB on its conviction
buy list of pan-European stocks.
Swiss investment bank Credit Suisse Group (CS) is advising
ABB.
-By Katharina Bart and Martin Gelnar, Dow Jones Newswires; +41
43 443 8043; katharina.bart@dowjones.com
(Jason Douglas in London contributed to this article.)
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