After a month-long tug of war, ABB pulled out of the competitive bidding process with Emerson for the purchase of Chloride Group. We think this was the most beneficial outcome for both ABB and Emerson shareholders. Emerson's £997 million bid is likely to seal the deal, unless another firm enters the process. Acquiring Chloride builds Emerson's network power and allows the company to expand its presence in Europe. In our opinion, Emerson has more ability to drive cost and revenue synergies through the acquisition than ABB, which is why Emerson could afford to stretch a little more in its valuation of Chloride.
The consolidation of the back-up power industry has led to the emergence of Schneider, Eaton, and Emerson as the dominant firms in the field. With emerging economies becoming more data-intensive and developed markets depending more on large data centres, the industry has a fairly large runway for growth across all types of solutions. Clearer now is the relative importance of the network power business to Emerson. The company spent over $1 billion acquiring Avocent in late 2009 and now is spending almost $1.5 billion for Chloride Group. With so much of the firm's capital being bet on network power, we expect this business to be the growth driver for Emerson over the next decade, akin to how process management led the way in the 2000s. We will review our fair value estimate for Emerson and ABB since we first assumed that Chloride would eventually be under ABB's control.
Daniel Holland is an equity analyst with Morningstar.
