Emerson Electric (EMR) has reached an agreement for the merger of its software businesses OSI Inc. and the Geological Simulation Software business with AspenTech (AZPN). The merger will result in a high-performance industrial software leader dubbed the “new AspenTech.” EMR shares fell 2.55% to close at $94.18 on October 11.
According to CEO Lal Karsanbhai, the AspenTech merger deal presents an attractive opportunity to enhance EMR’s software strategy and capitalize on the evolving industrial software landscape. Consequently, Emerson Electric should strengthen its position as a premier industrial software leader.
Under the terms of the agreement, Emerson will contribute $6 billion for a 55% stake in the new AspenTech. AspenTech shareholders will own the remaining 45% stake in the new company. Additionally, AspenTech shareholders are to receive $87 per share in cash and 0.42 a share of common stock of the new company.
The transaction amounts to about $160 per AspenTech share, with an equity value of about $11 billion. It also represents a 27% premium to AspenTech’s closing price on October 6. The transaction is expected to close in the second quarter of next year. (See Top Smart Score Stocks on TipRanks)
The transaction paves the way for Emerson Electric to build a more diversified and sustainable portfolio following the creation of an industrial software company. New AspenTech should allow the company to accelerate its software strategy.
Majority ownership in New AspenTech strategically positions Emerson Electric to deploy capital for growth through investments in mergers and acquisitions. New AspenTech is expected to generate $1.1 billion in revenue in FY22 and adjusted EBITDA of about $490 million.
Recently, Wells Fargo analyst Joseph O’Dea reiterated a Hold rating on the stock with a $99 price target, implying 5.12% upside potential to current levels.
Consensus among analysts is a Moderate Buy based on 6 Buys and 6 Holds. The average Emerson Electric price target of $109.83 implies 16.62% upside potential to current levels.
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