Global automation giant Emerson Electric has lost its patience in its months-long pursuit of National Instruments Corp., another massive multinational industrial company.
Emerson Electric Co., A multinational automation solutions developer headquartered in St. Louis, Miss., has launched a hostile takeover bid to acquire National Instruments Corp. (NI), an Austin, Texas-based manufacturer of instrumentation and automated testing solutions.
The proposal to acquire NI for $53 per share gives NI an implied enterprise value of $7.6 billion. Emerson said in a proposal letter to NI leadership that it’s prepared to complete the deal with a combination of cash on hand and existing credit facilities, meaning the deal is not subject to any financing conditions.
The offer is a significant increase over Emerson’s starting position, which was $48 per share in a proposal submitted on May 25, 2022. Not only did NI decline the offer, but it also repurchased more than two million shares to shore up its fortifications against the takeover.
Emerson has been in hot pursuit of NI ever since. A trove of private communications between the two companies made public by Emerson shows company officials exchanging tersely worded letters and meeting privately, with NI’s president and CEO Eric Starkloff consistently rebuffing efforts by Emerson’s president and CEO Lal Karsanbhai to convince NI’s board of the value behind the proposal.
This culminated in a third offer submitted on November 3, 2022, where Emerson improved its price to the current dollar value. In this letter, Emerson also informed NI’s leadership and board that it had accumulated 2.3 million NI shares in the open market and intended to seek regulatory approval to acquire more. Emerson threatened to run a slate of directors specifically targeting NI’s Chairman and former CEO, who were both up for re-election to its board of directors.
From that point, NI continued to stall for time until January 13, 2023, when it announced it was undertaking a strategic review which would “…include consideration of a full range of available strategic, business and financial alternatives, including solicitation of interest from potential acquirors and other transaction partners, some of whom have already approached the company.” NI also announced that its board approved the adoption of a limited duration shareholder rights plan (commonly referred to as a ‘Poison Pill’) to stop Emerson from obtaining a larger stake in NI.
“The strategic initiatives we have implemented since 2017 and our focus on software and related services have transformed NI into a company with higher growth, better profitability and lower cyclicality,” said Eric Starkloff, NI’s CEO, in a release. “These changes have enabled deliberate focus on high-growth sub-segments, including electric and autonomous vehicles, wireless communications and new space technology. As we undertake this review and evaluation of strategic options, we will remain focused on the execution of our strategy and delivering value for all of our key stakeholders, including shareholders, customers, partners and employees.”
The next week, on January 17, 2023, Emerson took its proposal public.
“Although Emerson would have preferred to reach an agreement privately, given NI’s announcement that it is undertaking a strategic review and after refusing to work with us toward a premium cash transaction over the past eight months, we are making our interest public for the benefit of all NI shareholders,” said Karsanbhai, in a prepared statement.
“We have long admired NI and believe that combining its best-in-class electronic test and measurement product and software offerings with Emerson’s industry-leading automation technology and software would enhance our ability to bring comprehensive solutions to a diverse set of end markets, accelerating growth and positioning Emerson to create significant shareholder value,” he added.
Why Emerson wants National Instruments
Emerson says the proposed transaction continues its transformation into a global automation company, and acquiring NI would tick a lot of boxes.
Technology Synergies: With NI, Emerson would gain a strong, complementary portfolio of differentiated electronic test and measurement offerings, and a technology stack of industry-leading intelligent devices, controls and software that complements Emerson’s technology in its core automation markets. Test and measurement is one of Emerson’s four priority segments.
Market Diversification: Emerson is targeting a total addressable market of around $35 billion, and test and measurement is a fast-growing and complementary segment to Emerson’s current offerings. Strong trends in its target segments include semiconductor, automotive and electric vehicles, and aerospace and defense.
It Takes Money to make Money:Even at $7 billion, Emerson says this transaction is expected to be accretive to its adjusted EPS in the first year. NI has an attractive financial profile, with approximately 70 percent gross margins. NI’s business has strong positions in attractive and growing markets, creating sustainable top line growth potential.
Goldman Sachs & Co. LLC and Centerview Partners LLC are the financial advisors to Emerson and Davis Polk & Wardwell LLP and Sidley Austin LLP are its legal advisors.
