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Monday 26 April, 2010

Emerson Electric Co

Offer for Chloride Group PLC

RNS Number : 7479K
Emerson Electric Co
26 April 2010
 



 

Emerson Electric Co.

 

26 April 2010

 

Statement re: Indicative Proposal for Chloride Group PLC

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM CANADA, AUSTRALIA, JAPAN OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

 

This is an announcement falling under Rule 2.4 of the City Code on Takeovers and Mergers (the "Code") and does not constitute an announcement of a firm intention to make an offer or to pursue any other transaction under Rule 2.5 of the Code. Accordingly, Chloride Group PLC shareholders are advised that there can be no certainty that a formal offer for Chloride Group PLC will be forthcoming, even if the pre-conditions in this announcement are satisfied or waived.

 

EMERSON PROPOSES COMBINATION WITH CHLORIDE
TO CREATE A LEADER IN THE GLOBAL UNINTERRUPTIBLE POWER SUPPLY MARKET

 

Indicative All-Cash Proposal of 275 Pence per Ordinary Share,

Representing Approximately £723 million for the Issued Share Capital of Chloride
 
This Represents a 34% Premium to the Last Closing Price Prior to Emerson Approaching Chloride and
a 40% Premium to the Three Month Average Closing Price

 

Chloride Would Serve as European Network Power Systems Headquarters for Emerson

 

Emerson Electric Co. ("Emerson") today announces that it made an indicative proposal on Friday, 23 April 2010 to the Board of Chloride Group PLC ("Chloride") to acquire the entire issued and to be issued share capital of Chloride (the "Indicative Proposal"). Emerson asked for a response from the Board of Chloride by Sunday evening, 25 April 2010. No such response to Emerson's Indicative Proposal was received.

 

Emerson and Chloride held discussions regarding a combination in 2008. Those confidential discussions became prematurely public and never achieved any meaningful level of engagement or consideration. In light of the 2008 events and in order to allow Emerson to directly engage with Chloride's shareholders and other stakeholders, Emerson has decided to make its current Indicative Proposal public. Included in Appendix I is a copy of the letter Emerson sent to Chloride with respect to its Indicative Proposal.

 

Emerson believes that the combination of Emerson and Chloride will create a powerful force in the global uninterruptible power supply ("UPS") market. In addition to the strong strategic case for a transaction, Emerson feels that a cash offer at this level provides compelling value for Chloride shareholders relative to its prospects as an independent company. 

 

Emerson is proposing an all-cash offer for Chloride of 275 pence per ordinary share. An offer at this level would value Chloride's issued share capital at approximately £723 million.

 

An offer price of 275 pence per ordinary share would represent:

 

·    a 34% premium to the price of Chloride's shares of 205.4 pence at close of business on 22 April 2010, the last closing price before Emerson sent a letter to Chloride outlining terms of the Indicative Proposal, and a 32% premium to the price of Chloride's shares of 209 pence at close of business on 23 April 2010;

·    a 40% premium to the average closing price of Chloride's shares of 197.1 pence for the three month period up to and including 22 April 2010, the last closing price before Emerson sent a letter to Chloride outlining terms of the Indicative Proposal;

·    a multiple of 16.6x FY 2010E EBITDA and 15.0x FY 2011E EBITDA based on IBES consensus estimates as of 22 April 2010, the last day before Emerson sent a letter to Chloride outlining terms of the Indicative Proposal; and

·    a multiple of 33.3x FY 2010E net income and 25.6x FY 2011E net income based on IBES consensus estimates as of 22 April 2010, the last day before Emerson sent a letter to Chloride outlining terms of the Indicative Proposal.

Emerson believes that a combination with Chloride makes strategic, operational and commercial sense. Emerson's strategic rationale for a combination is as follows:

 

·    solidifies Emerson's position in Europe and other key geographic markets;

·    transforms Chloride from a regional player into a global competitor by leveraging Emerson's broad global scale and geographic access; and

·    fully utilizes Emerson's extensive customer relationships to accelerate growth of Chloride's industrial UPS product offering.

Emerson has a long-standing respect for Chloride's business and expects to build on Chloride's expertise to grow the existing business. Emerson intends for Chloride to serve as Emerson's European Network Power Systems headquarters and expects a net addition of skilled jobs in the UK.

 

Commenting on the proposed transaction, David N. Farr, Chairman, Chief Executive Officer and President of Emerson, said:

 

"Chloride is a good business with a solid management team. But in a market where scale is becoming increasingly important, we believe that Chloride will be better able to compete long-term with the benefit of the strength and resources of Emerson. As part of Emerson, Chloride will have the support and long-term investment capability necessary to prosper and compete in the global marketplace."

  

"Emerson's Indicative Proposal presents significant value for Chloride's shareholders. Long-term, this combination will create a strong global competitor with the scale, resources and combined expertise that will benefit all stakeholders."   

 

Greenhill & Co. and J.P. Morgan Cazenove are acting as financial advisers to Emerson. J.P. Morgan Cazenove is also acting as corporate broker. Slaughter and May and Davis Polk & Wardwell are acting as legal advisers to Emerson.

 

Further Information on Emerson

 

Emerson (NYSE:EMR), based in St. Louis, Missouri (USA), founded in 1890, is a global leader in bringing technology and engineering together to provide innovative solutions for customers in industrial, commercial, and consumer markets through its network power, process management, industrial automation, climate technologies, and appliance and tools businesses. Sales in fiscal 2009 were $20.9 billion. For more information, visit www.Emerson.com.

 

Further Information on Chloride

 

Chloride is based in London, UK and specialises in the provision of Uninterruptible Power Supply (UPS) systems. Chloride's sales in fiscal 2009 were £326.7 million. The group employs 2,333 people in 15 countries, of which 374 are located in the UK. Chloride has assembly and test facilities in Italy, France, the USA and India in addition to R&D facilities in India, Germany and Italy and a manufacturing joint venture in China.

 

Pre-conditions to the Indicative Proposal

 

The Indicative Proposal is conditional upon the satisfaction or waiver by Emerson of the following pre-conditions:

 

·    confirmatory due diligence on Chloride;

·    confirmation being received from the Board of Chloride that it will provide a unanimous recommendation to the shareholders of Chloride to accept the offer;

·    Chloride agreeing to enter into an inducement fee (to be set at 1% of the equity value of the offer); and

·    there being no material adverse change since 23 April 2010 in the circumstances of Chloride and no material acquisitions or disposals being made by it or any member of the Group since 23 April 2010.

 

Emerson reserves the right to waive any or all of the above pre-conditions to the making of the potential offer.

 

Reservations Relating to the Indicative Proposal

 

Emerson reserves the right to reduce the offer price in the event that:

 

(i)         the Board of Chloride agrees and recommends an offer at the reduced price;

 

(ii)        a third party announces a firm intention to make an offer for Chloride;

 

(iii)       the issued share capital of Chloride is greater than the 263.03 million ordinary shares that has been assumed, in which case there would be a pro rata reduction in Emerson's offer price; or

 

(iv)       Chloride announces, declares or pays a dividend or any other distribution to its shareholders, in which case there would be an equivalent reduction in Emerson's offer price.

 

Sources and Bases:

 

(a)        Unless otherwise stated, financial and other information concerning Chloride and Emerson has been extracted from published sources or from Emerson's management sources.

 

(b)        The value attributed to Chloride's issued share capital is based upon 263,033,510 Chloride shares in issue as announced by Chloride on 31 March 2010 pursuant to the FSA's Disclosure and Transparency Rules.  

 

(c)        The stated share prices of Chloride are based on the closing middle-market price provided by the London Stock Exchange.

 

(d)        Information in relation to the average closing price per Chloride share over the three month period ended 22 April 2010 is for the period from 25 January 2010 up to and including 22 April 2010 (only trading days are included in the average).

 

Enquiries:

 

Emerson

Mark Polzin (Media)  +1 314 982 1758

Lynne Maxeiner (Investors)  +1 314 553 2197

 

Greenhill (Financial Adviser)

London: +44 20 7198 7400

Brian Cassin

 

New York: +1 212 389 1500

Robert Greenhill or Jeff Buckalew

 

J.P. Morgan Cazenove (Financial Adviser and Corporate Broker)

London: +44 20 7588 2828

Mark Breuer or Dwayne Lysaght

 

Brunswick Group (Public Relations)

London: +44 20 7404 5959

Michael Harrison or Kate Holgate

 

New York: +1 212 333 3810

Stanislas Neve de Mevergnies or Giovanna Konicke 

                       

Further Information

 

Greenhill & Co. International LLP, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Emerson and for no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than Emerson for providing the protections afforded to clients of Greenhill & Co. International LLP or for providing advice in relation to the matters set out in this announcement.

 

J.P. Morgan plc, which conducts its UK investment banking business as J.P. Morgan Cazenove and is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Emerson and for no one else in connection with the matters set out in this announcement and will not be responsible to anyone other than Emerson for providing the protections afforded to clients of J.P. Morgan plc or for providing advice in relation to the matters set out in this announcement.

 

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities, or the solicitation of any vote or approval in any jurisdiction. Any offer will be made solely by certain offer documentation which will contain the full terms and conditions of any offer. This announcement has been prepared in accordance with English law and the UK City Code on Takeovers and Mergers (the "Code") and information disclosed may not be the same as that which would have been prepared in accordance with the laws of jurisdictions outside of the United Kingdom.

 

The distribution of this announcement in jurisdictions other than the United Kingdom and the availability of any offer to Chloride shareholders who are not resident in the United Kingdom may be affected by the laws of relevant jurisdictions. Therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom or Chloride shareholders who are not resident in the United Kingdom will need to inform themselves about, and observe, any applicable requirements.

 

Forward-looking Statements

 

This document contains certain forward-looking statements. These forward-looking statements may be identified by words such as "believes", "expects", "anticipates", "projects", "intends", "should", "seeks", "estimates", "future" or similar expressions or by discussion of, among other things, strategy, goals, plans or intentions. Various factors may cause actual results to differ materially in the future from those reflected in forward-looking statements contained in this document, among others: (1) economic and currency conditions; (2) market demand; (3) pricing; (4) competitive and technological factors; (5) the risk that the transaction may not be consummated; (6) the risk that a regulatory approval that may be required for the transaction is not obtained or is obtained subject to conditions that are not anticipated; (7) the risk that Chloride will not be integrated successfully into Emerson; and (8) the risk that revenue opportunities, cost savings and other anticipated synergies from the transaction may not be fully realized or may take longer to realize than expected.

 

Dealing Disclosure Requirements

 

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any paper offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any paper offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

 

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any paper offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

 

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

 

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

 

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129.

 

Publication on Emerson Website

 

A copy of this announcement will be available on Emerson's website at (www.Emerson.com) by no later than 12.00 noon (London time) on 27 April 2010.

 



APPENDIX I: LETTER TO CHLORIDE CHAIRMAN

 

Strictly Private & Confidential

 

23 April 2010

 

Norman Broadhurst
Chairman

Chloride Group PLC

23 Lower Belgrave Street

London SW1W 0NR

 

Dear Norman,

 

Indicative Cash Proposal for Chloride Group PLC of 275 pence per ordinary share

I am writing on behalf of Emerson Electric Co. ("Emerson") to outline the terms of an indicative proposal (the "Indicative Proposal") to make an offer for the entire issued and to be issued share capital of Chloride Group PLC ("Chloride" or the "Company"). 

 

Strategic rationale for the combination

As you know from our discussions in 2008, Emerson has a long-standing respect for Chloride, its employees and their accomplishments. That notwithstanding, Chloride remains a relatively small player in the consolidating global uninterruptible power supply ("UPS") market. We believe that UPS customers prefer to work with companies like Emerson, with the advantages of size, a strong balance sheet, significant product investment capability and a global footprint. Our resulting view is that the smaller size and regional strategy of Chloride has left it without the geographic reach necessary to succeed in the longer term. 

The combination of our companies will create a stronger global competitor in the UPS market with the scale and combined expertise to achieve and sustain leading positions in Chloride's core markets. The Indicative Proposal would deliver a substantial premium and immediate value to Chloride shareholders while creating a business with the resources, support and long-term investment capability to deliver for its customers.

It is our intention, should we be able to agree a transaction, that Chloride become the new European headquarters for Emerson's Network Power Systems business and help drive Emerson's European UPS growth strategy.

  

Indicative Proposal

Subject to the assumptions and pre-conditions below, Emerson would be prepared to make an all cash offer for Chloride of 275 pence per ordinaryshare. An offer at this level would value Chloride's issued share capital at approximately £723 million.

An offer price of 275 pence per ordinary share would represent:

·    a 33.9% premium to the price of Chloride's shares of 205.4 pence at close of business on 22 April 2010;

·    a 39.5% premium to the average closing price of Chloride's shares of 197.1 pence for the three month period up to and including 22 April 2010;

·    a multiple of 16.6x FY 2010E EBITDA and 15.0x FY 2011E EBITDA based on IBES consensus estimates as of 22 April 2010; and

·    a multiple of 33.3x FY 2010E net income and 25.6x FY 2011E net income based on IBES consensus estimates as of 22 April 2010.

Our Indicative Proposal is based on a review of the Chloride business which has been carried out using publicly available information, including Chloride's trading update issued on 7 April 2010.  

The level of cash premium to be delivered and our financial analysis suggest that this is a compelling offer and one that the Chloride Board should seriously consider in the best interests of Chloride's shareholders.

Emerson may choose to make the offer through a bid vehicle.

Greenhill & Co. and J.P. Morgan Cazenove are acting as our financial advisers. J.P. Morgan Cazenove is also acting as our corporate broker. Our legal advisers are Slaughter and May and Davis Polk & Wardwell.

 

Financing

An acquisition of Chloride would be funded entirely through financing available from Emerson's existing cash resources and debt facilities.

 

Pre-conditions and conditions

The making of the offer by Emerson is conditional upon the satisfaction or waiver by Emerson of the following pre-conditions:

·    confirmatory due diligence on Chloride as outlined below;

·    confirmation being received from the Board of Chloride that it will provide a unanimous recommendation to the shareholders of Chloride to accept the offer;

·    Chloride agreeing to enter into an inducement fee (to be set at 1% of the equity value of the offer); and

·    there being no material adverse change since the date of this letter in the circumstances of Chloride and no material acquisitions or disposals being made by it or any member of the Group since the date of this letter.

Emerson reserves the right to waive any or all of the above pre-conditions to the making of the offer.

The offer would be subject to the conditions usually attaching to a recommended UK public offer of this nature (as regulated by the City Code on Takeovers and Mergers), including in relation to regulatory matters.

We would be required to seek clearance from European and other competition authorities for an acquisition of Chloride. Based on the information we have reviewed to date in conjunction with counsel, we would expect the Indicative Proposal to be cleared by the EU competition authorities. 

Approval from Emerson's shareholders will not be required.

 

Due diligence

Emerson would require the opportunity to complete its confirmatory due diligence on the Chloride business. We do not think that this should entail an extensive exercise but would be focussed on confirming the key assumptions underlying Emerson's Indicative Proposal. 

We believe that we can complete the due diligence very rapidly if given full access to conduct this exercise, including meetings with senior management.

 

Key assumptions

The terms outlined above are based on the following assumptions:

·    the issued share capital of Chloride at announcement will include no more than 263.03 million ordinary shares;

·    the consolidated net financial debt of Chloride is approximately equal to £35.7 million, being the publicly disclosed indebtedness and cash position as at 30 September 2009, and its current pension deficit is approximately equal to £15.1 million on an accounting basis;

·    Chloride has no unusual, actual or contingent liabilities that are not reflected in publicly available financial statements, including material litigation;

·    Chloride has been run in the ordinary course since 30 September 2009 and will continue to be so run;

·    there are no other items of either a one-off or non-recurring nature likely to have a material negative impact on the cash flows or profitability of the business going forward;

·    no material changes to the operation, trading, assets or liabilities of Chloride have occurred since 30 September 2009 except as publicly disclosed;

·    there are no events of default or other consequences of a change of control that would impact the results of Chloride or the financing / financial position of Chloride;

·    the interim dividend of 1.9 pence per Chloride share for the period ended 30 September 2009 was paid in December 2009 and that no subsequent dividend is announced, declared or paid; and

·    no distributions will be announced, declared or paid, and no bank refinancing or capital raisings will be announced or undertaken, after the date of this letter.

 

Announcements and confidentiality

For the avoidance of doubt, this letter is a statement of our intentions only and should not be construed in any regard as constituting an offer or an intention to make an offer or inviting an offer for Chloride or any of its securities or otherwise giving rise to any legally binding obligations on or to any person (save for the provisions relating to confidentiality) and, in particular, does not constitute a conditional offer or a firm intention to make an offer for the purposes of Rule 2 of The City Code on Takeovers and Mergers.

This letter is submitted to you on the strict understanding that Chloride and its advisers shall keep both its contents and its existence, as well as any discussions arising from it, confidential and shall not make any public announcement or disclosure in relation to it without Emerson's express prior written consent, save as required by law or regulation, or by the Panel on Takeovers and Mergers (in which case you will use your reasonable endeavours to consult with Emerson in advance and agree the form of such disclosure with us). Specifically, we would not expect Emerson to be publicly identified without our prior written consent. You should ensure that each person to whom our interest in Chloride is disclosed is made aware of this understanding and takes all steps to ensure it is not breached.

 

Conclusion

We trust that this letter makes clear our level of seriousness and enthusiasm for pursuing this opportunity immediately. We are keen to make rapid progress with a view to announcing a fully recommended offer as soon as possible and look forward to your response. 

Given the history of discussions between our two companies, we believe that if we are to progress to a transaction, it is in all parties' interests to do so as swiftly as possible. We therefore request your response to this proposal no later than 9:00 PM BST on 25 April 2010. We believe that the case for a combination of the two companies is compelling and look forward to entering into a constructive dialogue. 

As you know, we at Emerson have been keen for some time to see this transaction occur. We are therefore determined to explore all possibilities to see if there is a basis for a transaction on terms that are beneficial to all parties. 

Please do not hesitate to contact me between now and Sunday evening should you have any questions in relation to this letter. I can be reached at any time through Emerson Development at +1 314 341 8750.

This matter has my full support and attention. We would like to move quickly to have our advisers and senior management team engage with yours in order to progress to a successful conclusion for all parties.

 

Yours sincerely,

 

 

 

 

David N. Farr

Chairman, Chief Executive Officer and President

 

 

CC: Tim Cobbold
Chief Executive
Chloride Group PLC

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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