Cooper case Solution
Introduction
Cooper Industries, Inc. is a manufacturer of heavy machinery and equipment. It has acquired some companies in the past as part of their expansion plans. Cooper acquires companies that are leading in their area of business, have a large market share and is the leading company in their area of operation. Currently, Cooper is focusing on building a hand tool business with a full product line that would use a common sales and distribution system and joint advertising. In this effort, Cooper has already acquired Lufkin Rule Company, Crescent Niagara Corporation and Weller Electric Corporation.
Currently the company is making acquisition strategy for Nicholson File Company. An earlier attempt had failed in 1969. Again, in March of 1972, Cooper had to back away due to the bid by H. K. Porter Company because they were afraid that Porter may raid them if they learnt of Cooper's attempts. Porter made an open offer of $42 per Nicholson share but were able to get only 133,000 shares instead of the required 249,000 shares for a majority stake.
The current situation in May 1972 is that the Nicholson management has recommended a friendly merger bid from VLN Corporation. Porter fears that they will loose value in their investment if this VLN deal goes through. They have approached Cooper to make a bid for Nicholson and have promised support in exchange of a Cooper share deal.
Decisions to be taken
The following decisions confront Cooper management:
Should Nicholson be acquired?
If yes, then how the controlling stake should be acquired.
Should it be a cash or equity offer, and at what terms?
What should be the deal offered to Porter and Nicholson management?
Methodology
The flowing steps were followed in our analysis:
Determining the value of Nicholson File ltd on an "as in" basis. We have used the free cash flow to firm (FCFF) method.
Determining the value of Nicholson on a "synergy" basis i.e. after it has been acquired by Coopers.
Determining the value
Cooper Industries, Inc. is a manufacturer of heavy machinery and equipment. It has acquired some companies in the past as part of their expansion plans. Cooper acquires companies that are leading in their area of business, have a large market share and is the leading company in their area of operation. Currently, Cooper is focusing on building a hand tool business with a full product line that would use a common sales and distribution system and joint advertising. In this effort, Cooper has already acquired Lufkin Rule Company, Crescent Niagara Corporation and Weller Electric Corporation.
Currently the company is making acquisition strategy for Nicholson File Company. An earlier attempt had failed in 1969. Again, in March of 1972, Cooper had to back away due to the bid by H. K. Porter Company because they were afraid that Porter may raid them if they learnt of Cooper's attempts. Porter made an open offer of $42 per Nicholson share but were able to get only 133,000 shares instead of the required 249,000 shares for a majority stake.
The current situation in May 1972 is that the Nicholson management has recommended a friendly merger bid from VLN Corporation. Porter fears that they will loose value in their investment if this VLN deal goes through. They have approached Cooper to make a bid for Nicholson and have promised support in exchange of a Cooper share deal.
Decisions to be taken
The following decisions confront Cooper management:
Should Nicholson be acquired?
If yes, then how the controlling stake should be acquired.
Should it be a cash or equity offer, and at what terms?
What should be the deal offered to Porter and Nicholson management?
Methodology
The flowing steps were followed in our analysis:
Determining the value of Nicholson File ltd on an "as in" basis. We have used the free cash flow to firm (FCFF) method.
Determining the value of Nicholson on a "synergy" basis i.e. after it has been acquired by Coopers.
Determining the value