By Lorraine Turner and Martin de Sa'Pinto
LONDON/ZURICH (Reuters) - U.S. suitor Emerson Electric
Chloride said it would enter talks with Emerson. Its stock was down 4 percent to 369.7 pence by 1430 GMT.
Emerson raised its cash offer on Tuesday by more than a third to 375 pence a share, seeking to tempt the British maker of uninterruptible power supplies (UPS) away from an agreed 860 million pound deal with Swiss ABB.
ABB said on Thursday it would walk away from Chloride, whose products protect against power outages at data centers, airports and hospitals. Some ABB investors had expected an increased bid.
"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 Joe Hogan said.
On Tuesday, Chloride said Emerson's higher offer represented a superior proposal and, under the terms of an agreement previously signed with ABB, it had formally given the Swiss group two days to match or beat the Emerson bid.
BIDDING WAR OVER
Further offers for Chloride were seen as unlikely.
"I can't believe someone will come into the frame now," said Steve Medlicott at Altium Securities. "The price from Emerson was a good price and it reflected cost reductions which ABB could not match."
The departure of ABB, Chloride's white knight, is a victory for Emerson Chief Executive David Farr -- albeit at $500 million more than he originally offered to pay.
Late last year Farr said Emerson was seeking to bolster its presence in emerging markets as the U.S. government was doing everything possible "to fundamentally destroy U.S. manufacturers ... (and was) ... wasting trillions of dollars" on bailouts.
ABB's withdrawal wrong-footed big hedge funds, including Davidson Kempner, Centaurus Capital and Mason Capital, who upped their stakes in Chloride on Tuesday, anticipating a higher counter-offer.
Six funds, using swaps and derivatives, bought the equivalent of almost a 5 percent stake in Chloride, at prices ranging from 385p to 389p a share, regulatory filings show.
Emerson, whose products range from power tools to thermostats and food-disposal units, is already a U.S. leader in the critical power market and has been keen to grow its UPS business in Europe and elsewhere.
It has said it expects annual cost savings of at least 33 million pounds from Chloride and possibly "meaningful revenue synergies."
A deal with Chloride would have allowed ABB into the $8 billion UPS market. ABB was seeking to ally Chloride's products with its global reach and big industrial customer base.
Helvea analyst Alessandro Migliorini said ABB shareholders would be relieved at its decision on Chloride. He said that while there was strategic sense to a deal, a higher bid would be value-destructive.
Emerson shares fell 60 cents, or 1.4 percent, to $43.09 in morning trade on the New York Stock Exchange. ABB shares were down 0.6 percent.
Emerson was not the only U.S. firm to win an international bidding war on Thursday. U.S. engineering firm URS Corp
Emerson is being advised by Greenhill and JP Morgan Cazenove, while Credit Suisse was advising ABB. Chloride's advisers are Citi and Investec.
($1 = 0.6697 pound)
(Reporting by Lorraine Turner and Martin de Sa'Pinto; Additional reporting by Quentin Webb in London and Michael Erman in New York; Editing by David Holmes, Dan Lalor and John Wallace)
