Emerson Electric: No Change to Our Fair Value Estimate as NI Deal Closes
Wide-moat-rated Emerson Electric EMR completed its $8.2 billion acquisition of test and measurement equipment and services provider National Instruments NATI on Oct. 11. We don’t expect to materially change our $105 fair value estimate, since our model currently accounts for the valuation impact from the transaction. We will update our financial projections once Emerson management issues guidance on the NI transaction’s impact.
However, we remind investors that our stand-alone fair value estimate for NI was $43 per share. Emerson paid an effective price of $59.61 per share. Even with run-rate cost synergies of $165 million by year five (which doesn’t include a front-end-loaded $155 million in costs to achieve, or what we estimate is a mid-single-digit percentage of net cost synergies by year five), we think Emerson is overpaying for the acquisition. Consequently, we still model about $700 million in value destruction from the deal. However, this isn’t material to our valuation; it translates to just over $1 of negative impact to our fair value estimate.
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