Based on the given information in the case study regarding the acquisition of Nicholson File Company by Cooper Industries, there is no question that Cooper should try to gain control of Nicholson. This decision is based on an analysis of the bargaining positions of each group of Nicholson stockholders which have disparate goals and needs that need to be met. In addition, an appropriate payment method and specific dollar value based on a competitor's offer and Cooper financial data was decided. The remainder of this paper will provide the analysis and rationale for this determination. Should Cooper Industries Acquire Nicholson File Company?c
Cooper Industries has been expanding through diversification since 1996. Cooper's requirements Is this essay helpful? Join OPPapers to read more and access more than 550,000 just like it! GET BETTER GRADES
to acquire a company has three major components. The target company must be: 1. In an industry in which Cooper could become a major player 2. In an industry that is fairly stable, with a broad market for the products and a product line of ‘small ticket' items; and 3. A leader in its market segment.
When looking at the criteria that Cizik's company (Cooper Industries), set forth relative to acquisitions, the acquisition of Nicholson meets all three objectives plus has significant potential short and long-term potential. Cooper management feels that by eliminating redundancy and streamlining Nicholson's operations this potential can be realized. Currently, Nicholson's financial history boasts a 2% increase in profit annually but this percentage is way below the industry average of 6%. Cooper management proposed that if Nicholson stops selling to every market, increased efficiencies would result and cut cost of goods sold from 69% of sales to 65%. It was also suggested that the acquisition could lower...
The management of Cooper Industries, Inc., is considering whether to acquire the Nicholson File Company, a leading manufacturer of hand tools. The Nicholson family and other members of the management group own about 20% of the Nicholson stock; the remainder is publicly held. From the standpoint of Cooper, an affirmative decision may involve Cooper in a bidding contest with two other companies, which have already purchased part of the outstanding Nicholson stock and made tender offers in an effort to acquire control of Nicholson. If Cooper decides to proceed, it must determine what price it will have to pay in order to acquire control of Nicholson and whether it can reasonably afford to pay this price for Nicholson. These decisions must be made in the light of the interests, motivations, and bargaining positions of several widely divergent groups of Nicholson stockholders. After these questions are resolved, the Cooper management must determine its precise acquisition tactics.
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1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Company in May 1972?
2. What is the maximum price that Cooper can afford to pay for Nicholson and still keep the acquisition attractive form the standpoint of Cooper? [Treasury Bills yielded 5.6% in May 1972.]
3. What are the concerns and bargaining positions of each group of Nicholson stockholders? What must Cooper offer each group in order to acquire its shares?
4. On the assumption that the Cooper management wants to acquire 100% of the outstanding Nicholson stock and to make the same offer to all stockholders, what offer must Cooper management make-in terms of dollar value and the form of payment (cash, stock, debt)?
5. What should Mr. Cizik recommend that the Cooper management do?
Table TN-A Operating Cash Flows of Nicholson If Acquired by Cooper (millions of $)...
Q1. The strategic...