Emerson Electric Co Offer For Chloride Group Plc

TIDMCHLD 
 
RNS Number : 7479K 
Emerson Electric Co 
26 April 2010 
 
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Emerson Electric Co. 
 
26 April 2010 
 
Statement re: Indicative Proposal for Chloride Group PLC 
 
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR 
FROM CANADA, AUSTRALIA, JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD 
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION 
 
This is an announcement falling under Rule 2.4 of the City Code on Takeovers and 
Mergers (the "Code") and does not constitute an announcement of a firm intention 
to make an offer or to pursue any other transaction under Rule 2.5 of the Code. 
Accordingly, Chloride Group PLC shareholders are advised that there can be no 
certainty that a formal offer for Chloride Group PLC will be forthcoming, even 
if the pre-conditions in this announcement are satisfied or waived. 
 
EMERSON PROPOSES COMBINATION WITH CHLORIDE 
 TO CREATE A LEADER IN THE GLOBAL 
                      UNINTERRUPTIBLE POWER SUPPLY MARKET 
 
         Indicative All-Cash Proposal of 275 Pence per Ordinary Share, 
    Representing Approximately GBP723 million for the Issued Share Capital of 
Chloride 
 
 This Represents a 34% Premium to the Last Closing Price Prior to 
  Emerson Approaching Chloride and 
 a 40% Premium to the Three Month Average 
                                  Closing Price 
 
Chloride Would Serve as European Network Power Systems Headquarters for Emerson 
 
Emerson Electric Co. ("Emerson") today announces that it made an indicative 
proposal on Friday, 23 April 2010 to the Board of Chloride Group PLC 
("Chloride") to acquire the entire issued and to be issued share capital of 
Chloride (the "Indicative Proposal"). Emerson asked for a response from the 
Board of Chloride by Sunday evening, 25 April 2010. No such response to 
Emerson's Indicative Proposal was received. 
 
Emerson and Chloride held discussions regarding a combination in 2008. Those 
confidential discussions became prematurely public and never achieved any 
meaningful level of engagement or consideration. In light of the 2008 events and 
in order to allow Emerson to directly engage with Chloride's shareholders and 
other stakeholders, Emerson has decided to make its current Indicative 
Proposal public. Included in Appendix I is a copy of the letter Emerson sent to 
Chloride with respect to its Indicative Proposal. 
 
Emerson believes that the combination of Emerson and Chloride will create a 
powerful force in the global uninterruptible power supply ("UPS") market. In 
addition to the strong strategic case for a transaction, Emerson feels that a 
cash offer at this level provides compelling value for Chloride shareholders 
relative to its prospects as an independent company. 
 
Emerson is proposing an all-cash offer for Chloride of 275 pence per ordinary 
share. An offer at this level would value Chloride's issued share capital at 
approximately GBP723 million. 
 
An offer price of 275 pence per ordinary share would represent: 
 
·    a 34% premium to the price of Chloride's shares of 205.4 pence at close of 
business on 22 April 2010, the last closing price before Emerson sent a letter 
to Chloride outlining terms of the Indicative Proposal, and a 32% premium to the 
price of Chloride's shares of 209 pence at close of business on 23 April 2010; 
·    a 40% premium to the average closing price of Chloride's shares of 197.1 
pence for the three month period up to and including 22 April 2010, the last 
closing price before Emerson sent a letter to Chloride outlining terms of the 
Indicative Proposal; 
·    a multiple of 16.6x FY 2010E EBITDA and 15.0x FY 2011E EBITDA based on IBES 
consensus estimates as of 22 April 2010, the last day before Emerson sent a 
letter to Chloride outlining terms of the Indicative Proposal; and 
·    a multiple of 33.3x FY 2010E net income and 25.6x FY 2011E net income based 
on IBES consensus estimates as of 22 April 2010, the last day before Emerson 
sent a letter to Chloride outlining terms of the Indicative Proposal. 
Emerson believes that a combination with Chloride makes strategic, operational 
and commercial sense. Emerson's strategic rationale for a combination is as 
follows: 
 
·    solidifies Emerson's position in Europe and other key geographic markets; 
·    transforms Chloride from a regional player into a global competitor by 
leveraging Emerson's broad global scale and geographic access; and 
·    fully utilizes Emerson's extensive customer relationships to accelerate 
growth of Chloride's industrial UPS product offering. 
Emerson has a long-standing respect for Chloride's business and expects to build 
on Chloride's expertise to grow the existing business. Emerson intends for 
Chloride to serve as Emerson's European Network Power Systems headquarters and 
expects a net addition of skilled jobs in the UK. 
 
Commenting on the proposed transaction, David N. Farr, Chairman, Chief Executive 
Officer and President of Emerson, said: 
 
"Chloride is a good business with a solid management team. But in a market where 
scale is becoming increasingly important, we believe that Chloride will be 
better able to compete long-term with the benefit of the strength and resources 
of Emerson. As part of Emerson, Chloride will have the support and long-term 
investment capability necessary to prosper and compete in the global 
marketplace." 
"Emerson's Indicative Proposal presents significant value for Chloride's 
shareholders. Long-term, this combination will create a strong global competitor 
with the scale, resources and combined expertise that will benefit all 
stakeholders." 
 
Greenhill & Co. and J.P. Morgan Cazenove are acting as financial advisers to 
Emerson. J.P. Morgan Cazenove is also acting as corporate broker. Slaughter and 
May and Davis Polk & Wardwell are acting as legal advisers to Emerson. 
 
Further Information on Emerson 
 
Emerson (NYSE:EMR), based in St. Louis, Missouri (USA), founded in 1890, is a 
global leader in bringing technology and engineering together to provide 
innovative solutions for customers in industrial, commercial, and consumer 
markets through its network power, process management, industrial automation, 
climate technologies, and appliance and tools businesses. Sales in fiscal 2009 
were $20.9 billion. For more information, visit www.Emerson.com. 
 
Further Information on Chloride 
 
Chloride is based in London, UK and specialises in the provision of 
Uninterruptible Power Supply (UPS) systems. Chloride's sales in fiscal 2009 were 
GBP326.7 million. The group employs 2,333 people in 15 countries, of which 374 
are located in the UK. Chloride has assembly and test facilities in Italy, 
France, the USA and India in addition to R&D facilities in India, Germany and 
Italy and a manufacturing joint venture in China. 
 
Pre-conditions to the Indicative Proposal 
 
The Indicative Proposal is conditional upon the satisfaction or waiver by 
Emerson of the following pre-conditions: 
 
·    confirmatory due diligence on Chloride; 
·    confirmation being received from the Board of Chloride that it will provide 
a unanimous recommendation to the shareholders of Chloride to accept the offer; 
·    Chloride agreeing to enter into an inducement fee (to be set at 1% of the 
equity value of the offer); and 
·    there being no material adverse change since 23 April 2010 in the 
circumstances of Chloride and no material acquisitions or disposals being made 
by it or any member of the Group since 23 April 2010. 
 
Emerson reserves the right to waive any or all of the above pre-conditions to 
the making of the potential offer. 
 
Reservations Relating to the Indicative Proposal 
 
Emerson reserves the right to reduce the offer price in the event that: 
 
(i)         the Board of Chloride agrees and recommends an offer at the reduced 
price; 
 
(ii)        a third party announces a firm intention to make an offer for 
Chloride; 
 
(iii)       the issued share capital of Chloride is greater than the 263.03 
million ordinary shares that has been assumed, in which case there would be a 
pro rata reduction in Emerson's offer price; or 
 
(iv)       Chloride announces, declares or pays a dividend or any other 
distribution to its shareholders, in which case there would be an equivalent 
reduction in Emerson's offer price. 
 
Sources and Bases: 
 
(a)        Unless otherwise stated, financial and other information concerning 
Chloride and Emerson has been extracted from published sources or from Emerson's 
management sources. 
 
(b)        The value attributed to Chloride's issued share capital is based upon 
263,033,510 Chloride shares in issue as announced by Chloride on 31 March 2010 
pursuant to the FSA's Disclosure and Transparency Rules. 
 
(c)        The stated share prices of Chloride are based on the closing 
middle-market price provided by the London Stock Exchange. 
 
(d)        Information in relation to the average closing price per Chloride 
share over the three month period ended 22 April 2010 is for the period from 25 
January 2010 up to and including 22 April 2010 (only trading days are included 
in the average). 
 
Enquiries: 
 
Emerson 
Mark Polzin (Media)  [phone] 
Lynne Maxeiner (Investors)  [phone] 
 
Greenhill (Financial Adviser) 
London: [phone] 
Brian Cassin 
 
New York: [phone] 
Robert Greenhill or Jeff Buckalew 
 
J.P. Morgan Cazenove (Financial Adviser and Corporate Broker) 
London: [phone] 
Mark Breuer or Dwayne Lysaght 
 
Brunswick Group (Public Relations) 
London: [phone] 
Michael Harrison or Kate Holgate 
 
New York: [phone] 
Stanislas Neve de Mevergnies or Giovanna Konicke 
Further Information 
 
Greenhill & Co. International LLP, which is authorised and regulated in the 

 
 
United Kingdom by the Financial Services Authority, is acting for Emerson and 
for no one else in connection with the matters set out in this announcement and 
will not be responsible to anyone other than Emerson for providing the 
protections afforded to clients of Greenhill & Co. International LLP or for 
providing advice in relation to the matters set out in this announcement. 
 
J.P. Morgan plc, which conducts its UK investment banking business as J.P. 
Morgan Cazenove and is authorised and regulated in the United Kingdom by the 
Financial Services Authority, is acting for Emerson and for no one else in 
connection with the matters set out in this announcement and will not be 
responsible to anyone other than Emerson for providing the protections afforded 
to clients of J.P. Morgan plc or for providing advice in relation to the matters 
set out in this announcement. 
 
This announcement is not intended to, and does not, constitute or form part of 
any offer, invitation or the solicitation of an offer to purchase, otherwise 
acquire, subscribe for, sell or otherwise dispose of, any securities, or the 
solicitation of any vote or approval in any jurisdiction. Any offer will be made 
solely by certain offer documentation which will contain the full terms and 
conditions of any offer. This announcement has been prepared in accordance with 
English law and the UK City Code on Takeovers and Mergers (the "Code") and 
information disclosed may not be the same as that which would have been prepared 
in accordance with the laws of jurisdictions outside of the United Kingdom. 
 
The distribution of this announcement in jurisdictions other than the United 
Kingdom and the availability of any offer to Chloride shareholders who are not 
resident in the United Kingdom may be affected by the laws of relevant 
jurisdictions. Therefore any persons who are subject to the laws of any 
jurisdiction other than the United Kingdom or Chloride shareholders who are not 
resident in the United Kingdom will need to inform themselves about, and 
observe, any applicable requirements. 
 
Forward-looking Statements 
 
This document contains certain forward-looking statements. These forward-looking 
statements may be identified by words such as "believes", "expects", 
"anticipates", "projects", "intends", "should", "seeks", "estimates", "future" 
or similar expressions or by discussion of, among other things, strategy, goals, 
plans or intentions. Various factors may cause actual results to differ 
materially in the future from those reflected in forward-looking statements 
contained in this document, among others: (1) economic and currency conditions; 
(2) market demand; (3) pricing; (4) competitive and technological factors; (5) 
the risk that the transaction may not be consummated; (6) the risk that a 
regulatory approval that may be required for the transaction is not obtained or 
is obtained subject to conditions that are not anticipated; (7) the risk that 
Chloride will not be integrated successfully into Emerson; and (8) the risk that 
revenue opportunities, cost savings and other anticipated synergies from the 
transaction may not be fully realized or may take longer to realize than 
expected. 
 
Dealing Disclosure Requirements 
 
Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any 
class of relevant securities of an offeree company or of any paper offeror 
(being any offeror other than an offeror in respect of which it has been 
announced that its offer is, or is likely to be, solely in cash) must make an 
Opening Position Disclosure following the commencement of the offer period and, 
if later, following the announcement in which any paper offeror is first 
identified. An Opening Position Disclosure must contain details of the person's 
interests and short positions in, and rights to subscribe for, any relevant 
securities of each of (i) the offeree company and (ii) any paper offeror(s). An 
Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made 
by no later than 3.30 pm (London time) on the 10th business day following the 
commencement of the offer period and, if appropriate, by no later than 3.30 pm 
(London time) on the 10th business day following the announcement in which any 
paper offeror is first identified. Relevant persons who deal in the relevant 
securities of the offeree company or of a paper offeror prior to the deadline 
for making an Opening Position Disclosure must instead make a Dealing 
Disclosure. 
 
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% 
or more of any class of relevant securities of the offeree company or of any 
paper offeror must make a Dealing Disclosure if the person deals in any relevant 
securities of the offeree company or of any paper offeror. A Dealing Disclosure 
must contain details of the dealing concerned and of the person's interests and 
short positions in, and rights to subscribe for, any relevant securities of each 
of (i) the offeree company and (ii) any paper offeror, save to the extent that 
these details have previously been disclosed under Rule 8. A Dealing Disclosure 
by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm 
(London time) on the business day following the date of the relevant dealing. 
 
If two or more persons act together pursuant to an agreement or understanding, 
whether formal or informal, to acquire or control an interest in relevant 
securities of an offeree company or a paper offeror, they will be deemed to be a 
single person for the purpose of Rule 8.3. 
 
Opening Position Disclosures must also be made by the offeree company and by any 
offeror and Dealing Disclosures must also be made by the offeree company, by any 
offeror and by any persons acting in concert with any of them (see Rules 8.1, 
8.2 and 8.4). 
 
Details of the offeree and offeror companies in respect of whose relevant 
securities Opening Position Disclosures and Dealing Disclosures must be made can 
be found in the Disclosure Table on the Takeover Panel's website at 
www.thetakeoverpanel.org.uk, including details of the number of relevant 
securities in issue, when the offer period commenced and when any offeror was 
first identified. If you are in any doubt as to whether you are required to make 
an Opening Position Disclosure or a Dealing Disclosure, you should contact the 
Panel's Market Surveillance Unit on [phone]. 
 
Publication on Emerson Website 
 
A copy of this announcement will be available on Emerson's website at 
(www.Emerson.com) by no later than 12.00 noon (London time) on 27 April 2010. 
 
                    APPENDIX I: LETTER TO CHLORIDE CHAIRMAN 
 
Strictly Private & Confidential 
 
23 April 2010 
 
Norman Broadhurst 
 Chairman 
Chloride Group PLC 
23 Lower Belgrave Street 
London SW1W 0NR 
 
Dear Norman, 
 
Indicative Cash Proposal for Chloride Group PLC of 275 pence per ordinary share 
I am writing on behalf of Emerson Electric Co. ("Emerson") to outline the terms 
of an indicative proposal (the "Indicative Proposal") to make an offer for the 
entire issued and to be issued share capital of Chloride Group PLC ("Chloride" 
or the "Company"). 
 
Strategic rationale for the combination 
As you know from our discussions in 2008, Emerson has a long-standing respect 
for Chloride, its employees and their accomplishments. That notwithstanding, 
Chloride remains a relatively small player in the consolidating global 
uninterruptible power supply ("UPS") market. We believe that UPS customers 
prefer to work with companies like Emerson, with the advantages of size, a 
strong balance sheet, significant product investment capability and a global 
footprint. Our resulting view is that the smaller size and regional strategy of 
Chloride has left it without the geographic reach necessary to succeed in the 
longer term. 
The combination of our companies will create a stronger global competitor in the 
UPS market with the scale and combined expertise to achieve and sustain leading 
positions in Chloride's core markets. The Indicative Proposal would deliver a 
substantial premium and immediate value to Chloride shareholders while creating 
a business with the resources, support and long-term investment capability to 
deliver for its customers. 
It is our intention, should we be able to agree a transaction, that Chloride 
become the new European headquarters for Emerson's Network Power Systems 
business and help drive Emerson's European UPS growth strategy. 
 
Indicative Proposal 
Subject to the assumptions and pre-conditions below, Emerson would be prepared 
to make an all cash offer for Chloride of 275 pence per ordinaryshare. An offer 
at this level would value Chloride's issued share capital at approximately 
GBP723 million. 
An offer price of 275 pence per ordinary share would represent: 
·    a 33.9% premium to the price of Chloride's shares of 205.4 pence at close 
of business on 22 April 2010; 
·    a 39.5% premium to the average closing price of Chloride's shares of 197.1 
pence for the three month period up to and including 22 April 2010; 
·    a multiple of 16.6x FY 2010E EBITDA and 15.0x FY 2011E EBITDA based on IBES 
consensus estimates as of 22 April 2010; and 
·    a multiple of 33.3x FY 2010E net income and 25.6x FY 2011E net income based 
on IBES consensus estimates as of 22 April 2010. 
Our Indicative Proposal is based on a review of the Chloride business which has 
been carried out using publicly available information, including Chloride's 
trading update issued on 7 April 2010. 
The level of cash premium to be delivered and our financial analysis suggest 
that this is a compelling offer and one that the Chloride Board should seriously 
consider in the best interests of Chloride's shareholders. 

 
 
Emerson may choose to make the offer through a bid vehicle. 
Greenhill & Co. and J.P. Morgan Cazenove are acting as our financial advisers. 
J.P. Morgan Cazenove is also acting as our corporate broker. Our legal advisers 
are Slaughter and May and Davis Polk & Wardwell. 
 
Financing 
An acquisition of Chloride would be funded entirely through financing available 
from Emerson's existing cash resources and debt facilities. 
 
Pre-conditions and conditions 
The making of the offer by Emerson is conditional upon the satisfaction or 
waiver by Emerson of the following pre-conditions: 
·    confirmatory due diligence on Chloride as outlined below; 
·    confirmation being received from the Board of Chloride that it will provide 
a unanimous recommendation to the shareholders of Chloride to accept the offer; 
·    Chloride agreeing to enter into an inducement fee (to be set at 1% of the 
equity value of the offer); and 
·    there being no material adverse change since the date of this letter in the 
circumstances of Chloride and no material acquisitions or disposals being made 
by it or any member of the Group since the date of this letter. 
Emerson reserves the right to waive any or all of the above pre-conditions to 
the making of the offer. 
The offer would be subject to the conditions usually attaching to a recommended 
UK public offer of this nature (as regulated by the City Code on Takeovers and 
Mergers), including in relation to regulatory matters. 
We would be required to seek clearance from European and other competition 
authorities for an acquisition of Chloride. Based on the information we have 
reviewed to date in conjunction with counsel, we would expect the Indicative 
Proposal to be cleared by the EU competition authorities. 
Approval from Emerson's shareholders will not be required. 
 
Due diligence 
Emerson would require the opportunity to complete its confirmatory due diligence 
on the Chloride business. We do not think that this should entail an extensive 
exercise but would be focussed on confirming the key assumptions underlying 
Emerson's Indicative Proposal. 
We believe that we can complete the due diligence very rapidly if given full 
access to conduct this exercise, including meetings with senior management. 
 
Key assumptions 
The terms outlined above are based on the following assumptions: 
·    the issued share capital of Chloride at announcement will include no more 
than 263.03 million ordinary shares; 
·    the consolidated net financial debt of Chloride is approximately equal to 
GBP35.7 million, being the publicly disclosed indebtedness and cash position as 
at 30 September 2009, and its current pension deficit is approximately equal to 
GBP15.1 million on an accounting basis; 
·    Chloride has no unusual, actual or contingent liabilities that are not 
reflected in publicly available financial statements, including material 
litigation; 
·    Chloride has been run in the ordinary course since 30 September 2009 and 
will continue to be so run; 
·    there are no other items of either a one-off or non-recurring nature likely 
to have a material negative impact on the cash flows or profitability of the 
business going forward; 
·    no material changes to the operation, trading, assets or liabilities of 
Chloride have occurred since 30 September 2009 except as publicly disclosed; 
·    there are no events of default or other consequences of a change of control 
that would impact the results of Chloride or the financing / financial position 
of Chloride; 
·    the interim dividend of 1.9 pence per Chloride share for the period ended 
30 September 2009 was paid in December 2009 and that no subsequent dividend is 
announced, declared or paid; and 
·    no distributions will be announced, declared or paid, and no bank 
refinancing or capital raisings will be announced or undertaken, after the date 
of this letter. 
 
Announcements and confidentiality 
For the avoidance of doubt, this letter is a statement of our intentions only 
and should not be construed in any regard as constituting an offer or an 
intention to make an offer or inviting an offer for Chloride or any of its 
securities or otherwise giving rise to any legally binding obligations on or to 
any person (save for the provisions relating to confidentiality) and, in 
particular, does not constitute a conditional offer or a firm intention to make 
an offer for the purposes of Rule 2 of The City Code on Takeovers and Mergers. 
This letter is submitted to you on the strict understanding that Chloride and 
its advisers shall keep both its contents and its existence, as well as any 
discussions arising from it, confidential and shall not make any public 
announcement or disclosure in relation to it without Emerson's express prior 
written consent, save as required by law or regulation, or by the Panel on 
Takeovers and Mergers (in which case you will use your reasonable endeavours to 
consult with Emerson in advance and agree the form of such disclosure with us). 
Specifically, we would not expect Emerson to be publicly identified without our 
prior written consent. You should ensure that each person to whom our interest 
in Chloride is disclosed is made aware of this understanding and takes all steps 
to ensure it is not breached. 
 
Conclusion 
We trust that this letter makes clear our level of seriousness and enthusiasm 
for pursuing this opportunity immediately. We are keen to make rapid progress 
with a view to announcing a fully recommended offer as soon as possible and look 
forward to your response. 
Given the history of discussions between our two companies, we believe that if 
we are to progress to a transaction, it is in all parties' interests to do so as 
swiftly as possible. We therefore request your response to this proposal no 
later than 9:00 PM BST on 25 April 2010. We believe that the case for a 
combination of the two companies is compelling and look forward to entering into 
a constructive dialogue. 
As you know, we at Emerson have been keen for some time to see this transaction 
occur. We are therefore determined to explore all possibilities to see if there 
is a basis for a transaction on terms that are beneficial to all parties. 
Please do not hesitate to contact me between now and Sunday evening should you 
have any questions in relation to this letter. I can be reached at any time 
through Emerson Development at [phone]. 
This matter has my full support and attention. We would like to move quickly to 
have our advisers and senior management team engage with yours in order to 
progress to a successful conclusion for all parties. 
 
Yours sincerely, 
 
 
 
 
David N. Farr 
Chairman, Chief Executive Officer and President 
 
 
CC: Tim Cobbold 
 Chief Executive 
 Chloride Group PLC 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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