Activist Elliott takes a stake in Aspen Technology and pushes back on an offer from Emerson

Enterprise: Aspen Know-how 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 variety 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)

Possession: ~9.0%

Common Value: n/a

Activist Commentary: Elliott is a really profitable and astute activist investor. The agency’s staff consists of analysts from main tech personal fairness companies, engineers, working companions – former expertise CEOs and COOs. When evaluating an funding, the agency additionally hires specialty and common administration consultants, knowledgeable value analysts and business specialists. Elliott usually watches firms for a few years earlier than investing and have an in depth steady of spectacular board candidates. The agency has traditionally centered on strategic activism within the expertise sector and has been very profitable with that technique. Nonetheless, 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 Know-how. The agency expressed its disagreement with Aspen’s choice to assist a $265 per share tender supply by Emerson Electrical, noting that it considerably undervalues the corporate.

Aspen Know-how (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 the moment 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 judge this supply, Aspen’s board shaped a particular committee of three impartial and disinterested administrators. In the end, on Jan. 27, 2025, it was introduced that the committee voted unanimously to suggest 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% place in Aspen in 2022 and till Might 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 Might. 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 mixing 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 truly introduced its bid on Election Day) bringing with it a extra lenient regulatory atmosphere 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 respected to Emerson is entry to Aspen’s software program and code, which Emerson can solely get by buying all the 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 an ordinary premium for these kinds of transactions and is according to the $100 per share of synergies Emerson would get right here. This implies a considerably greater honest worth than $265 per share. When all of the synergies and integration benefits Emerson has on this transaction, a extra affordable takeout worth appears to be like to be north of $350 per share.

As a majority shareholder, Emerson has a variety of management on this scenario. Absent an activist investor, this deal doubtless will get executed at $265. Not solely does the value appear obviously low, however the course of suggests a sweetheart deal. For instance, Aspen’s “impartial 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 included, 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 chance), 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 subsequent largest shareholder with 6.5%, so its vote will probably be vital. It needs to be famous that it isn’t clear if Elliott’s place is in frequent inventory or swaps (a typical observe for the agency) as its actions right here wouldn’t require the agency to file a 13D. Nonetheless, on this scenario it isn’t 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 frequent inventory to vote. Nonetheless, 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 danger), the shares underlying the swaps is not going to be tendered.

One last notice – this isn’t only a “bumpitrage” scenario 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 another worth it finds inadequate. The agency would doubtless be glad 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, it is a scenario the place if Emerson ups its supply, the inventory will go up. If the supply goes away, the substitute ceiling does too, and the inventory worth may additionally go up in that scenario.

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.