Emerson Announces Key Actions to Complete Portfolio Transformation

Emerson announced three key strategic and financial actions in the final phase of its portfolio transformation to an industrial technology leader focused on automation: 
• Emerson has made a proposal to acquire all outstanding shares of common stock of As-penTech not already owned by Emerson for $240 per share in cash. The proposed transaction follows Emerson’s 55% majority investment in AspenTech, which was completed in 2022. Emerson currently owns approximately 57% of AspenTech’s outstanding shares of common stock. Upon completion of the transaction, AspenTech would become a wholly owned subsidiary of Emerson. 
• Emerson has commenced a process to explore strategic alternatives, including a cash sale, for the Safety & Productivity segment, which comprises the remaining businesses not related to automation in Emerson’s portfolio. 
• Emerson plans to repurchase approximately $2 billion of its common stock in fiscal year 2025, with approximately $1 billion of the repurchase expected to be completed in the first quarter of fiscal year 2025.

“Emerson has been executing against a clear value creation roadmap as we build the most differentiated global industrial technology portfolio of software-defined and hardware-advantaged automation solutions,” said Lal Karsanbhai, president and CEO of Emerson.

“The key strategic actions we are announcing today are consistent with our objective to drive value for our shareholders and complete our portfolio transformation in the most financially attractive way,” Karsanbhai added. “Upon the successful completion of these actions, Emerson will have created a cohesive automation portfolio which strengthens our innovation leadership in the market and positions Emerson to deliver further growth, margin expansion and shareholder value creation.”

Emerson’s proposed $240 per share in cash to acquire all outstanding shares of AspenTech common stock not already owned represents a multiple of 29x consensus estimates for As-penTech’s fiscal year 2025 adjusted EBITDA, a multiple consistent with the forward multiple paid in its original transaction for AspenTech.

Emerson’s proposal represents a 35% premium to the company’s undisturbed share price of $177.84 on Aug. 6, 2024, and an 8% premium to the undisturbed 52 week high of $221.94 through Aug. 6, 2024, the date immediately prior to Emerson’s Aug. 7, 2024 earnings call, when active transaction speculation began in the market, including in multiple published analyst re-ports.

The proposal implies a fully diluted market capitalization for AspenTech of $15.3 billion and an enterprise value of $15.1 billion.

Karsanbhai continued, “Since completing our initial investment in 2022, our partnership with AspenTech has been highly productive and advanced our capabilities in software-defined control. The strategic and operating success of our partnership with AspenTech over the last two years gives us confidence that the time is right to bring Emerson and AspenTech together. As one company, with shared priorities and investment, we will be even better positioned for growth, margin expansion and shareholder value creation.”

The combination of Emerson and AspenTech would advance key initiatives, create new opportunities through full integration as a single company and further accelerate Emerson’s industrial software strategy with benefits including: 
• Accelerates Realization of Software-Defined Control: Developments over the last three years have proven the value and feasibility of software-defined control. A single inte-rated organization would benefit Emerson as it designs seamless hardware plus soft-ware solutions for its customers.
• Enhances Alignment Between Emerson and AspenTech for Additional Synergy Realization: As a single company leveraging the proven Emerson Management System, there will be opportunities for immediate additional cost efficiencies from the transaction. Commercially, the proposed transaction drives greater alignment, collaboration and integration, to allow Emerson and AspenTech to invest, innovate and cross-sell more effectively and drive further sales synergies over time.
• Strengthens Combined Automation Software Offering: As a single integrated business, Emerson will have a highly differentiated automation software business globally with software addressing the entire lifecycle of automating complex operations, from design and engineering to production and asset optimization. 

Emerson has delivered its proposal in a letter to AspenTech’s Board of Directors, filed with the SEC. The proposal does not create any binding legal obligation between Emerson and As-penTech unless and until mutually acceptable definitive transaction documents are executed.

Emerson will not proceed with such a transaction unless a fully empowered special committee, comprising solely independent and disinterested directors appointed by AspenTech’s Board of Directors and advised by independent legal and financial advisors, recommends approval of such transaction to the AspenTech Board.

Emerson’s proposal is that the transaction be effected by a tender offer that would be subject to a non-waivable condition that at least a majority of the AspenTech common stock held by minority stockholders be tendered and not withdrawn in accordance with the framework established under Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) and its progeny; and there-after a merger consummated at the same price without further stockholder action.

The proposal is not subject to any financing condition and would be financed from cash on hand, committed lines of credit and/or other available sources of financing

Emerson also announced that it is exploring strategic alternatives for its Safety & Productivity segment, including a cash sale, to maximize shareholder value. The segment, which includes Emerson’s legacy tools businesses, contributed $1.4 billion of sales to Emerson in fiscal year 2024, with 24.5% adjusted segment EBITA margins.

There is no deadline or definitive timetable set for completion of the strategic alternatives process or assurance that the process will result in any transaction.

Emerson also announced that it plans to repurchase approximately $2.0 billion of its common stock in fiscal year 2025 increasing its total capital returned to shareholders to approximately 100 percent of the guided free cash flow. Emerson expects to complete approximately $1 billion of the repurchase by the end of the first fiscal quarter. 

The announced repurchase underscores Emerson’s commitment to driving shareholder returns and confidence in the company’s strong outlook, significant free cash generation and benefits of the actions announced today. Assuming successful completion of the transactions, Emerson expects total net leverage to be less than 2x by the end of fiscal year 2025 and expects to maintain its A2/A credit rating.