UPDATE 4-Chloride rejects $1.1 billion approach from Emerson

* Top shareholders look for much higher bid

* Offer at 34 percent premium, or 24 times expected EPS

* To solidify Emerson’s position in Europe

* Chloride rejects offer that “significantly undervalues” it

* Chloride shares up 43 percent to 299 pence

(Adds investors, analyst on counterbids, new Emerson comment)

By Victoria Bryan and Raji Menon

LONDON, April 26 (BestGrowthStock) – Chloride Group (CHLD.L: )
rejected a new 723 million pound ($1.1 billion) approach from
former suitor Emerson Electric and was urged by major
shareholders to hold out for a much higher bid from the U.S.
industrials group this time around.

Emerson (EMR.N: ) gave the power protection firm only two days
to respond to its 275-pence-a-share cash proposal over the
weekend before going public on Monday, and said its next steps
would be to contact Chloride’s institutional shareholders.

Shares in Chloride, whose products protect against power
shortages at Heathrow’s Terminal 5 and Arsenal’s Emirates soccer
stadium, shot up by 43 percent to an all-time high of 300 pence.
The rise made them easily the top FTSE 250 riser (.FTMC: ), and
indicated the market expects a sweetened offer.

Two top-10 shareholders told Reuters Chloride’s management
was right to rebuff the approach and said Chloride’s European
footprint, coupled with high barriers to entry in the industry,
meant Emerson should offer significantly more.

“It’s a strategic asset, a major player in Europe and it’s
an important piece of the jigsaw in this growth industry,” said
one shareholder. “Any offer would have to be substantially
higher than three pounds to have any chance of success.”

Emerson talked to Chloride in 2008 about a 270 pence per
share offer, but those talks broke down after becoming public.
While lower in sterling terms, that offer would have cost
Emerson more in dollars, equating to roughly $1.3 billion.

Ralph Singleton, head of research at no. 10 shareholder
Montanaro, said Emerson were “not as strong as they would like
to be in Europe and the exchange rates where they are now make
Chloride look quite attractive.”

“The barriers to entry are quite high in terms of
reputation, service delivery and expertise, which probably
explains the Americans haven’t the headway they would’ve liked
to make in Europe, and why they feel they’ve got to go down the
route of making an acquisition,” he added.


The offer represents a 34 percent premium to the last
closing price before the approach, or 24 times expected earnings
per share (EPS) for the year to end-March, Emerson said.

Analyst Scott Cagehin of Numis said take-out multiples in
the sector have been as high as 30 times prospective EPS.

Seymour Pierce analyst Ian Robertson said he believed
Emerson could pay up to 339 pence per share without diluting
earnings in the current financial year.

But Robertson doubted serious counter-bidders would emerge,
with competition problems restraining Schneider (SCHN.PA: ) and
Eaton (ETN.N: ) unlikely to pay what would be a big premium to its
own share price as a multiple of earnings.

Chloride said both Emerson’s approaches undervalued the
company and that since the original one in 2008 it had developed
the business further.

“The board believes the company has better prospects as a
result of the steps that it has taken in this regard,” it said
in a brief statement.

Emerson said it intended for Chloride to act as its European
Network Power Systems headquarters and this would result in more
jobs in Britain, where Emerson already employs 3,000 people
across 30 sites.

David N. Farr, Emerson’s chairman, chief executive and
president, defended his company’s proposal.

“We continue to believe in the strategic merits of a
combination between Emerson and Chloride and that our indicative
proposal represents an attractive premium and compelling value
proposition with greater certainty for shareholders,” Farr said
in an email after Chloride’s rejection.

Earlier Farr told reporters Emerson had gone back to
Chloride because it still believed there was a clear strategic
reason for a deal, and Chloride’s smaller scale left it without
the geographic reach needed for long-term success.

Shares in Emerson, which generates a fifth of its annual $21
billion sales in Europe, rose 0.4 percent by 1420 GMT to $52.95
a share, valuing the company at almost $40 billion.

JP Morgan Cazenove and Greenhill & Co are advising Emerson,
while Chloride’s advisors are Investec.

Investment Tools

(Additional reporting by Quentin Webb and Kate Holton in London
and Nick Zieminski in New York; Editing by David Cowell and Joel
($1=.6465 pounds)

UPDATE 4-Chloride rejects $1.1 billion approach from Emerson