Tuesday, October 6, 2009

Emerson buys Avocent. Shareholders deserved more $$$ (AVCT, EMR)

In a bid to improve its infrastructure management offerings, Emerson (EMR) announced this morning that it is acquiring computer peripheral firm Avocent (AVCT) for $25 per share, a pretty healthy 25% premium to where Avocent shares closed yesterday.

Emerson shares are up 3% and should be higher, consider the steal they're getting.

From the release:
Avocent’s IT infrastructure management technology is recognized as a leader in managing IT device operating and performance information. These configuration and monitoring technologies complement Emerson Network Power’s power systems, energy management and precision cooling solutions. Emerson’s data center-related revenues were approximately $2.6 billion in fiscal 2008.
“Combining Avocent’s technologies, relationships and installed base with Emerson’s power and cooling presence allows us to offer a more compelling solution to our data center customers’ most pressing challenge - energy efficiency,” said David N. Farr, Emerson chairman, CEO and president. “It furthers our customers’ ability to better manage reliability, availability and lifecycle costs through a simple yet comprehensive view of the complete data center physical infrastructure.”

It's a fantastic deal for Emerson, and completely undervalues Avocent. In 2010 Avocent is projected to earn 1.80 per share in earnings, which is about $80million. The huge non-cash expenses noted below, when added back to earnings, point to Free Cash Flow of nearly DOUBLE net income, or about $150million. That is a 15% Free Cash Flow Yield (FCFY) on the current market cap, even after today's pop. FAR TOO CHEAP, and shareholders should not be pleased at the lowball price paid for their company.

The Avocent board of directors unanimously approved this deal. They'll face some unhappy shareholders.

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