Pavlo Gonchar | Sopa Photos | Lightrocket | Getty Photos
Firm: Aspen Expertise (AZPN)
Enterprise: Aspen Expertise supplies industrial software program that focuses on serving to clients in asset-intensive industries worldwide. Its software program is utilized in efficiency engineering, modeling and design, provide chain administration, predictive and prescriptive upkeep, digital grid administration and industrial information administration. The corporate serves a spread of asset-intensive industries, together with oil and fuel exploration and manufacturing; oil and fuel processing and distribution; in addition to oil and fuel refining and advertising and marketing.
Inventory Market Worth: $16.8B ($265.25 per share)
Aspen Expertise shares previously yr
Activist: Elliott Funding Administration
Possession: ~9.0%
Common Price: n/a
Activist Commentary: Elliott is a really profitable and astute activist investor. The agency’s crew contains analysts from main tech non-public fairness corporations, engineers, working companions – former know-how CEOs and COOs. When evaluating an funding, the agency additionally hires specialty and basic administration consultants, knowledgeable value analysts and business specialists. Elliott usually watches firms for a few years earlier than investing and have an in depth secure of spectacular board candidates. The agency has traditionally targeted on strategic activism within the know-how sector and has been very profitable with that technique. Nevertheless, over the previous a number of years its activism group has grown, and Elliott has been doing much more governance-oriented activism and creating worth from a board degree at a a lot bigger breadth of firms.
What’s taking place
On Feb. 7, Elliott introduced that it is taken a $1.5 billion position in Aspen Expertise. The agency expressed its disagreement with Aspen’s determination to help a $265 per share tender supply by Emerson Electrical, noting that it considerably undervalues the corporate.
Behind the scenes
Aspen Expertise (AZPN) is a worldwide supplier of course of optimization software program options designed to handle and optimize plant and course of design, operational efficiency, and provide chain planning. On Nov. 5, 2024, Emerson Electrical (EMR), which at the moment owns roughly 57.4% of Aspen’s excellent shares, issued a young supply to accumulate all excellent shares of Aspen not already owned by Emerson at $265 per share. To judge this supply, Aspen’s board shaped a particular committee of three unbiased and disinterested administrators. In the end, on Jan. 27, 2025, it was introduced that the committee voted unanimously to advocate the transaction for approval. On Feb. 7, Elliott introduced that it opposes the tender supply because the agency doesn’t imagine it pretty values the corporate.
Emerson acquired a 55% position in Aspen in 2022 and till Could 2024 had a standstill settlement stopping it from buying extra inventory (it acquired to 57% by way of share repurchases by the corporate). As an insider for two.5 years, Emerson is aware of Aspen effectively and will have made this supply at any time since Could. As a controlling shareholder, Emerson has an informational benefit over the general public and pursuing a buyout now means that it is strategically timing its transfer. Notably, it comes after an excellent quarter the place the combination of Emerson’s contributed belongings from its 2022 majority funding is beginning to take maintain, an enchancment of margins appears to be on the horizon, notably with the recent suspension of Aspen’s Russia business, and the seating of the Trump administration (Emerson really introduced its bid on Election Day) bringing with it a extra lenient regulatory surroundings for oil- and chemical-related merchandise.
When Emerson publicly introduced its tender supply, Aspen inventory was buying and selling at roughly $240 per share, making this a ten% takeover premium that doesn’t come near accounting for the numerous synergies Emerson might get from this transaction. Whereas there are operational and gross sales synergies of no less than $100 per share, what’s most useful to Emerson is entry to Aspen’s software program and code, which Emerson can solely get by buying your entire firm. There’s a clear precedent for this. In January 2023, Schneider Electrical closed out its acquisition of Aveva, shopping for out the remaining 40% of the corporate – which occurs to be Aspen’s smaller peer participant. It provided a 41% premium to Aveva’s undisturbed share value earlier than Schneider’s curiosity was disclosed in August 2022. That is extra of a typical premium for these kinds of transactions and is in line with the $100 per share of synergies Emerson would get right here. This implies a considerably larger honest value than $265 per share. When taking a look at all of the synergies and integration benefits Emerson has on this transaction, a extra cheap takeout value seems to be north of $350 per share.
As a majority shareholder, Emerson has lots of management on this state of affairs. Absent an activist investor, this deal doubtless will get finished at $265. Not solely does the value appear manifestly low, however the course of suggests a sweetheart deal. For instance, Aspen’s “unbiased particular committee” that permitted this deal was comprised of three administrators, two of whom have been Emerson’s designated administrators on the board. So, Emerson successfully managed the particular committee that was tasked with reviewing the tender supply. Fortuitously, in Delaware, the place the corporate is integrated, a young supply requires no less than 50% of disinterested excellent shareholders to approve the transaction. This implies 21.4% of the remaining shareholders (apart from Emerson) have to vote for the deal for it to go. Elliott has 9%, and if each different shareholder votes (an inconceivable probability), Elliott would simply want one other 12.4% to dam the transaction. If 5% of shareholders don’t vote, Elliott would solely want a further 7.4% of votes. Kayne Anderson is the following largest shareholder with 6.5%, so its vote can be necessary. It needs to be famous that it’s not clear if Elliott’s place is in widespread inventory or swaps (a standard observe for the agency) as its actions right here wouldn’t require the agency to file a 13D. Nevertheless, on this state of affairs it’s not that related. If the corporate have been required to get the vote of fifty% of disinterested shareholders, Elliott would wish to have its place in widespread inventory to vote. Nevertheless, since on this case the requirement is a young of fifty% of disinterested shares, even when Elliott owns swaps (and assuming the counterparty doesn’t take fairness threat), the shares underlying the swaps is not going to be tendered.
One ultimate be aware – this isn’t only a “bumpitrage” state of affairs for Elliott. Whereas the agency would promote to Emerson at a good value, it owns the inventory as a result of it likes Aspen and thinks it’s a good funding as a standalone firm owned 57% by Emerson. If Emerson doesn’t enhance its bid, that doesn’t imply Elliott will tender on the $265 value or every other value it finds inadequate. The agency would doubtless be blissful to personal the inventory and profit from the identical operational and macro tailwinds that Emerson sees. Furthermore, the corporate simply had a robust earnings name, however the inventory didn’t rise previous the $265 on the information because the supply value is establishing considerably of a synthetic ceiling. So, this can be a state of affairs the place if Emerson ups its supply, the inventory will go up. If the supply goes away, the factitious ceiling does too, and the inventory value might additionally go up in that state of affairs.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.
