Tuesday, December 12, 2023

Why National Instruments Stock Soared Today

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What happened

Shares of National Instruments Corporation (NASDAQ: NATI) were soaring Tuesday morning, up 13.4% as of 10:32 a.m. ET.

National Instruments — which makes test-and-measurement software and solutions for engineers in the semiconductor, aerospace & defense, transportation, and government sectors — received a buyout offer this morning from Emerson Electric (NYSE: EMR).

While it’s not clear if the company will agree to the offer, it’s certainly nice to be wanted. Its share price had actually appreciated up to a slightly higher level than the overall buyout offer at one point this morning, which suggests investors think other parties might make a higher counteroffer, or that National Instruments might be able to negotiate a higher price.

So what

Emerson’s offer amounts to $53 per share, equating to just under $7 billion, or a $7.6 billion enterprise value when incorporating National Instruments’ net debt. The offer is all cash, which means Emerson would have to take on a higher debt load for the transaction.

National Instruments stock had already risen 17% last Friday, after the company disclosed that it was pursuing “strategic alternatives.” That is usually code for some sort of buyout or transaction, which is why shareholders got so excited on that announcement.

Today’s disclosed buyout offer of $53 per share amounts to a 32% premium over National Instruments’ closing price last Thursday, before the Friday announcement around strategic alternatives.

Why are shareholders bidding the stock’s price higher? Well, it appears Emerson has been pursuing National Instruments aggressively for months, and the latter has resisted. The reason Emerson is disclosing its latest offer today is due to National Instruments’ announcement last week that it was pursuing strategic alternatives.

In this morning’s filing disclosing the offer, Emerson CEO Lal Karsanbhai said:

Although Emerson would have preferred to reach an agreement privately, given [National Instruments’] announcement that it is undertaking a strategic review, and after refusing to work with us toward a premium cash transaction over the past eight months, we are making our interest public for the benefit of all NI shareholders… . Acquiring NI is another step forward in Emerson’s journey to develop a cohesive, higher growth and higher margin portfolio and build on its global automation focus. As Emerson outlined at our recent Investor Conference, we are transforming our portfolio toward higher-growth automation markets aligned with secular macro trends, which will deliver significant growth and profitability for years to come.

Now what

It’s not hard to see why National Instruments would make an attractive acquisition for Emerson, a larger automation-focused company. National Instruments has displayed mid-teens revenue growth this year, with solid profitability. Whether or not Emerson’s offer is enough to satisfy shareholders and the board of directors is another matter.

Today’s price action indicates the market thinks National Instruments might be able to do better. Given the 2022 bear market, it’s perhaps not surprising that Emerson would be seeking to pick up assets amid market pessimism, and it’s also not surprising National Instruments may be resistant to a deal until overall market and economic sentiment improves. Interested investors in both stocks should monitor these developments closely.

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Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Emerson Electric. The Motley Fool recommends National Instruments. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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