2nd UPDATE: ABB Bids For UK's Chloride As Spending Spree Continues

Power and industrial automation company ABB Ltd. (ABB) Tuesday extended a recent acquisition spree by launching a GBP890 million bid for Chloride Group PLC (CHLD.LN), potentially triggering a battle for the British company with Emerson Electric Co. (EMR) of the U.S.

ABB's bid for Chloride, which makes systems to protect customers from power surges or failures, means the Swiss company has set aside over $3 billion for acquisitions in recent weeks after a decade of avoiding major acquisitions, and is still looking for more targets.

It acquired U.S.-based Ventyx, which makes software for the energy sector, for more than $1 billion earlier this month, and last month said it will spend about $965 million to raise its stake in its Indian subsidiary, ABB Ltd. (India) (500002.BY) to 72% from 52%. It also bought U.S. measurement product maker K-TEK for an undisclosed price.

The change in acquisition strategy had been expected after Chief Executive Officer Joe Hogan two years ago replaced Fred Kindle, who was forced to leave the company after a dispute with the board over the company's strategy. Hogan, a proven deal maker, joined from General Electric Co. (GE), but his first moves were to react to the economic downturn by cutting costs and steamlining the company's businesses in Europe and the U.S.

Kindle's caution over acquisitions followed a difficult period for the company. ABB was brought to the brink of bankruptcy in the early 2000s due to lingering asbestos liability claims and due to a huge debt pile it built up during a major acquisition push in the late 1990s. It settled asbestos claims filed against its U.S. subsidiaries four years ago and also sold some businesses to help reduce debt.

In recent years it has built a large cash pile, leading investors to call for a new strategy on acquisitions.

A successful acquisition of Chloride would still leave ABB with about $3 billion in net cash, after paying dividends, and the appetite for more deals, Chief Financial Officer Michel Demare said.

"This does not temper our ambition to look for more value-creating acquisitions in the future, even larger ones than we have done so far," he said, adding that the company wouldn't threaten its investment-grade credit rating.

However, ABB's cash bid for Chloride, which has been backed by the British company's board, faces competition from Emerson Electric, which has been pursuing the U.K.-based company and two months ago had a GBP723 million, or 275 pence a share, bid rejected because it was deemed too low.

Emerson Tuesday said it is considering its position on Chloride and will make an announcement in due course.

Hogan said ABB had been talking to Chloride about a potential collaboration for roughly 18 months, but intensified the talks when Emerson bid for Chloride.

"Obviously, Emerson putting them into play forced us to move faster than we would have, but we had been talking to them for some time," Hogan said.

Chloride's shareholders will receive a 3.3-pence-a-share final dividend, as proposed by Chloride last month, as part of the takeover offer, ABB said.

The ABB CEO didn't rule out going higher to clinch at least 75% of Chloride, but said it felt it had "put a good offer on the table" with its 325 pence-a-share bid.

Chloride's shares shot higher after ABB's bid, which was 12% higher than Chloride's 289 pence closing price Monday and was deemed at the upper end of what is economically justifiable by several analysts.

At 1321 GMT Tuesday, Chloride's shares were trading up 53 pence, or 18.5%, at 342 pence, the biggest gain on London's FTSE 250 mid-cap index and outperforming a 0.03% fall in the Stoxx Europe 600 industrial good and services index. Meanwhile, ABB's stock traded up CHF0.12, or 0.6%, at CHF19.34.

ABB is after Chloride's uninterrupted power supplies business, especially in the medium- and high-power segment of the market, where ABB sees growth opportunities. Other potential rivals for Chloride could include Schneider Electric SA (SU.FR) and Eaton Corp. (ETN). Schneider and Eaton declined to comment.

Analysts generally welcomed ABB's bid, but cautioned on the high price.

"In our view, the key issue for investors will be the conference call and the extent to which ABB can illustrate credible revenue and cost synergies, and remove any potential concerns that it could be over-paying for this deal," Goldman Sachs analyst Tim Rothery wrote in a note to investors. Goldman ranks ABB on its conviction buy list of pan-European stocks.

Swiss investment bank Credit Suisse Group (CS) is advising ABB.

-By Katharina Bart and Martin Gelnar, Dow Jones Newswires; +41 43 443 8043; katharina.bart@dowjones.com

(Jason Douglas in London contributed to this article.)

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