Cooper Acquires Nicholson: a Financial Analysis

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Before making any decisions we need to take a closer look at the impacts that the acquiring of Nicholson would have on Cooper Inc. Cooper wants to acquire Nicholson while allowing them to retain control and management independence of the company. However for Cooper to be able to realize the benefits of such a deal they would need to increase the efficiency of the business through refining their product offering through cutting certain product lines and reducing employees who’s tasks have become redundant due to the merger as well as combining the two companies’ distribution networks. This will likely result in the retention of the Nicholson family’s shares since Cooper will probably not allow complete management independence.

To take control of Nicholson, Cooper needs to obtain 265,000 more shares but if the Nicholson management does not accept Cooper’s terms then the 247,000 shares that are held by speculators and uncommitted shareholders will not be sufficient. This leaves them with the option of striking an agreement with H.K. Porter. Since Porter now has 177,000 shares that will be converted to VLN preferred shares if Nicholson accepts their offer, it would be beneficial for them to come to an agreement with Cooper since their preferred shares are a more attractive option. Porter’s position may leave room for negotiation, Cooper may be able to bring down their asking price of a tax free $50 per share.

Besides the current issue of Cooper being able to acquire Nicholson, they may have to consider some other problems they may encounter post merger. Assuming the Cooper manages to acquire a controlling share of Nicholson, they still need to refine Nicholson’s operations to reach their projected cash flows and return on equity that were the driving forces behind the acquisition including the added value of synergies. If Cooper is not able to achieve its targets for various possible reasons then they are obligated to pay Porter a high cost of $50 per share...
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