Activist Elliott takes a stake in Aspen Expertise and pushes again on a suggestion from Emerson

Enterprise: Aspen Expertise gives industrial software program that focuses on serving to prospects 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 gasoline exploration and manufacturing; oil and gasoline processing and distribution; in addition to oil and gasoline refining and advertising.

Inventory Market Worth: $16.8B ($265.25 per share)

Possession: ~9.0%

Common Price: n/a

Activist Commentary: Elliott is a really profitable and astute activist investor. The agency’s staff consists of analysts from main tech non-public fairness companies, engineers, working companions – former know-how CEOs and COOs. When evaluating an funding, the agency additionally hires specialty and common administration consultants, professional value analysts and trade specialists. Elliott typically watches firms for a few years earlier than investing and have an intensive steady of spectacular board candidates. The agency has traditionally centered 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 stage at a a lot bigger breadth of firms.

On Feb. 7, Elliott introduced that it is taken a $1.5 billion place in Aspen Expertise. The agency expressed its disagreement with Aspen’s choice to help a $265 per share tender supply by Emerson Electrical, noting that it considerably undervalues the corporate.

Aspen Expertise (AZPN) is a world 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 present owns roughly 57.4% of Aspen’s excellent shares, issued a young supply to amass all excellent shares of Aspen not already owned by Emerson at $265 per share. To guage 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 consider it pretty values the corporate.

Emerson acquired a 55% place in Aspen in 2022 and till Could 2024 had a standstill settlement stopping it from buying further inventory (it acquired to 57% via share repurchases by the corporate). As an insider for two.5 years, Emerson is aware of Aspen properly 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 a very good 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, significantly with the current suspension of Aspen’s Russia enterprise, and the seating of the Trump administration (Emerson really introduced its bid on Election Day) bringing with it a extra lenient regulatory setting 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 may get from this transaction. Whereas there are operational and gross sales synergies of a minimum of $100 per share, what’s most precious 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 supplied a 41% premium to Aveva’s undisturbed share worth earlier than Schneider’s curiosity was disclosed in August 2022. That is extra of a normal premium for a lot of these transactions and is in keeping with the $100 per share of synergies Emerson would get right here. This implies a considerably increased truthful worth than $265 per share. When all of the synergies and integration benefits Emerson has on this transaction, a extra cheap takeout worth appears to be like to be north of $350 per share.

As a majority shareholder, Emerson has a number of management on this state of affairs. Absent an activist investor, this deal seemingly will get completed 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 accredited this deal was comprised of three administrators, two of whom had been Emerson’s designated administrators on the board. So, Emerson successfully managed the particular committee that was tasked with reviewing the tender supply. Thankfully, in Delaware, the place the corporate is integrated, a young supply requires a minimum of 50% of disinterested excellent shareholders to approve the transaction. This implies 21.4% of the remaining shareholders (apart from Emerson) must vote for the deal for it to cross. 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 an extra 7.4% of votes. Kayne Anderson is the subsequent largest shareholder with 6.5%, so its vote shall be vital. It must be famous that it’s not clear if Elliott’s place is in frequent inventory or swaps (a standard follow 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 had been required to get the vote of fifty% of disinterested shareholders, Elliott would wish to have its place in frequent 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 remaining observe – this isn’t only a “bumpitrage” state of affairs for Elliott. Whereas the agency would promote to Emerson at a good worth, 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 improve its bid, that doesn’t imply Elliott will tender on the $265 worth or some other worth it finds inadequate. The agency would seemingly be completely satisfied to personal the inventory and profit from the identical operational and macro tailwinds that Emerson sees. Furthermore, the corporate simply had a powerful earnings name, however the inventory didn’t rise previous the $265 on the information because the supply worth is establishing considerably of a man-made 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 worth may 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.