Sparks fly as Emerson tops ABB's Chloride deal

LONDON (Reuters) - Spurned U.S. suitor Emerson Electric (EMR.N) raised its cash offer for Chloride CHLD.L by more than a third to $1.5 billion (995 million pounds), seeking to tempt the British group away from an agreed $1.25 billion deal with Switzerland's ABB (ABBN.VX).

Shares of the UK maker of uninterruptible power supplies (UPS) closed up 11 percent at 385.2 pence on Tuesday, above Emerson's sweetened offer, suggesting some investors think ABB could yet trump Emerson's bid.

Chloride said after the London market closed on Tuesday that it believed Emerson's offer represented a "superior proposal" and, under the terms of an agreement it signed with ABB, had formally notified the Swiss company of this view.

Under the earlier agreement, if Chloride tells ABB it has received a superior offer, ABB has 48 hours to match or top it. ABB said it was considering its options.

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 yet 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 is led by Chief Executive Tim Cobbold, who took over in July 2008, just months after the company rebuffed an earlier approach from Emerson. Cobbold, a mechanical engineer turned accountant, spent 18 years at Smiths Group (SMIN.L) before joining Chloride as chief operating officer in 2007.

"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, which owns about 1 percent of Chloride shares.

'PRETTY RICH PRICE'

U.S.-based analysts said the price for Chloride already appeared high, but they could not rule out higher bids.

"It is clear that Chloride is viewed as a critical acquisition by Emerson but shareholders may not like the price," Deutsche Bank analyst Nigel Coe said in a note.

By raising its offer, Emerson is looking to protect its dominant position in the global market for network power, where it has about a 30 percent share, ahead of rivals like Eaton Corp (ETN.N) and France's Schneider (SCHN.PA), said Sterne Agee analyst Nick Heymann.

"This is somebody reinforcing that the playground is just for three guys and I'm the biggest guy in the playground," Heymann said.

Emerson was offering a "pretty rich price" for a company with 3 percent or 4 percent market share and heavily reliant on slow-growing European markets, he said. Emerson's due diligence on Chloride failed to identify a strategic rival in ABB, he added, and Emerson Chief Executive David Farr was blindsided by ABB's counterbid.

"I think Farr is an opportunistic thinker, which is good, and he's been tracking this deer in the woods for a long time. And he thought there wasn't anyone else with a hunting licence," Heymann said.

Emerson closed down 3.5 percent at $43.29 in New York.

COST SAVINGS

Emerson's new offer is equivalent to 30 times Chloride's forecast earnings per share 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 also makes industrial automation systems, said it targeted annual cost savings of at least 33 million pounds from a takeover, and possibly "meaningful revenue synergies."

Its offer of 375 pence per share in cash, compared with an earlier 275p, is 15 percent above ABB's 325p offer.

The level of Emerson's offer raises questions about whether ABB, a surprise bidder for Chloride, will be able to counterbid. When the Swiss group launched its agreed bid earlier this month, analysts suggested the price was already expensive.

Numis's Scott Cagehin said ABB should already have a clear idea of what Chloride is worth, since 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 of ABB fell 5 percent to 19.02 Swiss francs.

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

(Reporting by Quentin Webb and Victoria Bryan; Additional reporting by Nick Zieminski in New York, Catherine Bosley in Zurich and Cecilia Valente in London; Editing by Jon Loades-Carter, Mike Nesbit, John Wallace and Steve Orlofsky)