Shares of Aspen Technology (AZPN) closed Monday's trading session 12.3% higher. The developer of industrial asset management software is merging with the software side of industrial giant Emerson Electric (EMR 1.29%) in a deal valued at roughly $11 billion.
Emerson is spinning out its industrial software operations -- Open Systems International (OSI) and Geological Simulation Software -- to merge with AspenTech in a cash-plus-stock transaction. Current Aspen shareholders will get a cash payment of $87 per share plus 0.42 stubs of the "new AspenTech" company, giving them 45% ownership of the reformed business while Emerson takes a controlling 55% stake. Emerson will also contribute $6 billion of cash to the resulting company's balance sheet. The deal is subject to the usual raft of regulatory and shareholder approvals. The final John Hancock should be in place during the second calendar quarter of 2022.
This business combination makes a lot of sense. The two companies have a long history of interlocking operations, and AspenTech's management often brings Emerson's close partnership up on their quarterly earnings calls. Integrating AspenTech's asset management tools with Emerson's automation tools and engineering prowess should give the new company access to a broader market.
AspenTech's stock now sits a rounding error below the total value of Emerson's bid. I would not recommend starting a new position right now because share prices are not likely to move very far until the deal is completed. That being said, you could also think of AspenTech's frozen price as an interesting hedge against volatility in the broader market over the next six months.