Emerson Stock Tanks on Bid for National Instruments. Management Has a Lot of Convincing to Do.

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Emerson Electric has turned hostile in its bid for National Instruments.

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Industrial-automation giant Emerson Electric made a hostile bid for test-equipment maker National Instruments,
Emerson wants to offer customers more automation solutions and software. However, Emerson investors are not liking the deal.

Tuesday, Emerson (ticker: EMR) exposure $53 all-cash bid for National Instruments (NATI), valuing the firm at $7.6 billion.

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National Instruments stock shares are at $52.86, up 11% to $52.33, in afternoon trading. The S&P 500 and Dow Jones Industrial Average are off 0.2% and 1%, respectively.

Emerson stock isn’t doing well either. However, the stock has fallen 674% to $90.63.

Why shouldn’t the bid price, since the $53 per share price trades National stock at roughly 22 times projected 2023 earnings. It is not very expensive compared to the trading history of National. For comparison, Emerson stock trades at about 19 times estimated 2023 earnings.

Debt can be a reason. The all-cash deal would require net debt to earnings before interest, taxes, depreciation, and amortization, or EBITDA, to run from about 2 times to about 3.5 times. It is slightly above average.

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Debt-to-Ebitda is a common measure of financial leverage, and is less than 2 times for the entire S&P 500 measure.

Investors may also anticipate a bidding war. National is looking for alternatives, and Emerson at $53 is unlikely to win the battle for National. “Deal seekers bet that figure is now the floor, not the ceiling,” wrote Gordon Haskett special situations analyst Don Bilson on Tuesday morning. He expected the final price for National Instruments to be closer to $60 per share.

A few days ago National Instruments’ stock was only $40. friday company announced It was undergoing a strategic review, and also put in place a so-called poison-pill defense designed to discourage a hostile takeover.

Now investors know why. Emerson was knocking at the gate.

The poison pill adopted by National Instruments essentially entitles existing shareholders to purchase one share of the company at a 50% discount for every share held if one accumulates 10% of the outstanding shares. This type of scheme makes it more expensive for an acquirer to acquire any company.

“Emerson pitches acquisition as a diversification play, brings a scale
“Positioning in attractive end markets with strong secular growth—namely semiconductors and electric vehicles,” wrote Bernstein analyst Brendan Lukey in a Tuesday report. He rates Emerson stock a Hold with a $100 price target.

Emerson management will have to convince National Instruments’ management and board that the acquisition makes sense. It also has to persuade Emerson’s shareholders.

Write to Al Root at [email protected]

Credit: www.marketwatch.com /

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