Cooper Industries Inc Case Study

Group Members:
Aruttam Biswas Harsh Chopra Supriya Gunthey Bharati Malik

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Like William Shakespeare's Said To Be Or Not To Be Cooper Industries Is Facing A Similar Situation To Acquire Or Not To Acquire
Is Nicholson File Company an attractive acquisition target for Cooper Industries? In what respect, if any, is Nicholson not an attractive target?

Overall, is there sufficient strategic fit to justify pursuing this acquisition?

What should be the range of prices Cooper Industries should be willing to pay for each share of Nicholson's stock, in case it wants to acquire the firm?

About Cooper Industries

The hand tools business is a lot less cyclical and cash flows are likely to be less lumpy. This fits in with Cooper's requirement of smoothing its income flows.

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The hand tools industry has a broad focus ranging from files to saws and hammers - mostly small ticket items.
This ensures that Nicholson does not depend on any particular customer/industry for its revenues, as is the case with Cooper. Nicholson is the market leader in file and rasps and ranks 4th in handsaws and saw blades. Thus it very much fits into Cooper's strategy of acquiring only leading companies

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ANALYSIS & INFERENCE

Valuation of Nicholson Files

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Inference

As per our calculations the value of Nicholson comes to be $65.78 while the book value is $51.25. This shows that as the share price is being undervalued the acquisition will be profitable and hence cooper should acquire Nicholson. The price band we are willing to offer is 45-50$ per share. Cooper needs to raise a capital of $38 million. They can either go for debt or equity or we can take part debt and part equity. The company needs to hold 51.1% of the stake to gain control. To Porter: we will acquire 177000 shares from porter at a price anywhere from $50. Rest of the share will be bought from the market, as they want short term gains, we would pay (46 48$) which is higher than the current market rate of $44.

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Inference (Continued)

Management of Nicholson as the management would not like to lose control of the company they will be given a 2:1 swap. Cash balance: $9 million out of which $3 million will be used for capital financing. Swap is worth $5.3 million will be made to the management i.e. 2 shares of cooper for every share of Nicholson. Rest will be bought from the market at a premium of $2-4 i.e. $46-48

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