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Shares in Invensys leapt 27 per cent on Wednesday on renewed rumours that Emerson Electric of the US was interested in buying all or part of the UK-based engineering group.
There has been recent speculation that Invensys is seeking to sell divisions such as its US controls business, although a buyer could instead elect to make an offer for the entire company with a view to carving it up.
As well as Emerson, Siemens and General Electric have been mentioned as potential suitors.
However, Invensys’s pension liabilities have long been seen as an obstacle to a potential break-up or takeover as the pension trustees would be likely to demand a large upfront payment from any bidder to cover the scheme’s deficit.
At the last count in March, the company’s net pension deficit stood at £426m. However, total liabilities – a reflection of Invensys’s long and varied history – were £5.8bn. Wednesday’s closing price of 257p valued Invensys’s equity at £1.7bn.
Paul Morland, an analyst at Peel Hunt, said the pension deficit was now less of a poison pill than it had been in the past, especially for a well-resourced buyer.
“They’ve increased contributions to help cut the deficit. The gross deficit is massive and probably still scares some people off, but the net deficit isn’t that bad,” he said.
Invensys is divided into three divisions – operations management, which provides hardware and software systems to control installations such as petrochemical plants; the rail business, which makes signalling systems; and controls, which provides controls for household and commercial appliances, such as washing machines.
According to Bloomberg, Emerson is said to be interested in Invensys’s Foxboro unit, which is part of operations management. Siemens, by contrast, has long been regarded as a potential buyer of Invensys’s rail business.
Mr Morland said that despite recent travails – problems with the installation of safety systems at Chinese nuclear power stations knocked £60m off the company’s operating profits last year – Invensys remained an attractive target.
“They’re a good company, they have some very high quality technology and 60 per cent of their order book is exposed to developing markets, so they are quite well insulated from what is going on in Europe,” he said.
“The management is is relatively inexperienced but they have some very good operational people and some excellent brand names. These make them an attractive target.”
Invensys declined to comment and Emerson could not be reached.