Cooper Case Study

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Economic Data
In the 1970’s, Sears was a major economic player in the tool industry. They were originally called Sears and Roebuck until the early 1970’s, but since then the Roebuck part of their name has been dropped. During the early 1970’s was when Sears began to develop more business in a retail setting, as they began expanding heavily into suburban shopping malls and doing less business through their mail-order catalog, which had been historically what had made them a well known company. The major brand that Sears holds that could have competed with Cooper/Nicholson is the Craftsman brand, which was registered by Sears in 1927 and was recently names one of America’s most trusted brands. From 1970-73, the US economy grew by an average of about 3.8% per year, and an average of 2.7% per year from 1974 onward. The 1970’s saw the rise in a term called “Stagflation”, meaning that the economy was growing slower than expected (stagnant), and inflation was happening to prices. It is believed that the inflation was the caused by the Vietnam War and President Lyndon Johnsons “Great Society” Programs. Those programs were a series of increases in government spending aimed at improving education, medical care, and transportation, all while helping to eliminate problems in urban centers. Unemployment was high back in the 1970’s, due to the large number of women who were attempting to enter the workforce, combined with the fact that there were very few jobs available. Additionally, major oil embargoes by OPEC nations drove up the cost of gas and often caused gas shortages. By the end of the 1960’s, the unemployment rate was around 3.3%, while at the end of the 70’s it was around 8.8%. It was pretty bad back in the 1970’s with many current economists comparing the United States economy today with the economy back in the 70’s. Additionally, there was a major stock market crash in 73-74. Between January of 1973 and December of 1974, the Dow Jones lost about 45% of its total value, and this was considered a major eye opener in terms of bringing the recession to the eyes of many people. According to many experts, the recession in the 1970’s officially lasted from 1973-75. Recommendation

It is recommended that Cooper Industries move forward with the acquisition of the Nicholson File Company at $62 per share. The $62 per share value that Cooper would pay to Porter is based on the assumption that the share price would increase in the years to come. This may not happen in which case the cost of the acquisition may be more than calculations show. Considering the bargaining position of Cooper vis--vis Porter, it may be possible to negotiate the price to somewhat below the quote of $62 per share. The inflows from the synergies that are expected to come from merger might be very significant as have been calculated and would make the $18 per share premium that Cooper is offering to pay over the market value at present worthwhile. Therefore, the recommendation would be that the spread between the value received and paid is reasonably high, and hence Cooper should make a decision based on its estimate of the synergies that are possible with the present portfolio, and also with possible acquisitions in the near future. Analysis of Alternative Solutions

With sales growth far below industry average, on paper Nicholson File Company presented itself as a poor sales and profit performance company. Although the financial situation of Nicholson pegged the company as an inefficient growth and revenue generating prospect, coupled with the right leadership and process changes, the company fully possessed all the strengths to be competitive in the industry and share in the high sales growth forecast for the industry. Even as a leader in their respective market, Cooper Industries faced pressures from the market as well as areas of opportunity from market related issues. The primary problem Cooper Industries was facing was its heavy dependence on sales to the...
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