2nd UPDATE: ABB Drops Chloride Bid, Clears Way For Emerson

Swiss engineering giant ABB Ltd. (ABB) Thursday dropped out of the bidding for Chloride Group PLC (CHLD.LN), clearing the way for Emerson Electric Co. (EMR) of the U.S. to acquire the U.K. industrial company for about GBP1 billion.

The decision by ABB to walk away from a bidding war shows that it isn't prepared to overpay for acquisitions, even though it has money to spend.

"While we still see considerable value in the combination of ABB and Chloride and have a high regard for the Chloride management team, we must take a disciplined approach when assessing potential acquisitions," ABB Chief Executive Officer Joe Hogan said.

ABB, which had a war chest of $5 billion in cash, has been on a buying spree in recent weeks. It has spent more than $1 billion to buy Ventyx, an energy industry software company, and about $965 million to raise its stake in Indian subsidiary ABB Ltd. (India) (500002.BY) to 72% from 52%. It also bought U.S. measurement product maker K-TEK for an undisclosed price.

Analysts had feared the race for Chloride would result in an exaggerated takeover price and are relieved by ABB's latest move.

"ABB has clearly communicated it would be disciplined, but people were worried anyway. They're now acting in line with what they have been promising, which is good," Zuercher Kantonalbank analyst Richard Frei said. "Chloride's customer base would have been nice to have but they aren't the undisputed leader in all the markets, and it's not ABB's core business."

Emerson, a power and industrial-automation company, April 26 outlined an indicative proposal to buy Chloride for 275 pence a share, or GBP723 million, a 34% premium to the U.K. company's closing price at the time of 209 pence and a 40% premium to its three-month average closing price. Chloride, which makes systems to protect customers from power surges or failures, rejected the offer, which it said significantly undervalued the company.

ABB entered the fray June 8 with a bid to buy Chloride for GBP890 million, or 325 pence a share. Chloride's board considered the ABB reasonable and fair and planned to recommend it to shareholders.

However, St Louis, Missouri-based Emerson returned to the table June 29 with a higher offer. It proposed to buy Chloride for GBP996 million, or 375 pence a share, a 79% premium to the U.K. company's closing price before its initial approach in April and a 90% premium to its three-month average closing price.

At the same time, it said Chloride shareholders would be entitled to the 3.3 pence a share dividend proposed by Chloride for the year ended March 31, taking the total value to 378.3 pence per share.

London-based Chloride, which posted pretax profit of GBP29.9 million in fiscal 2010 on revenue of GBP336 million, declared the Emerson bid superior and agreed to open talks.

Analysts don't expect any more bidders to come forward.

At 0903 GMT, Chloride's shares in London traded down 16 pence, or 4.2%, at 370 pence. In Zurich, ABB's shares traded down 0.13 Swiss francs, or 0.7%, at CHF18.84.

-By Martin Gelnar, Dow Jones Newswires; [phone]; [e-mail]