Cooper Industries was unsuccessful in acquisitions until it established a basic criteria for future acquisitions. That new criteria worked well, and when they went to acquire their fourth company since implementing their strategy, they faced fierce competition. They have to decide whether or not to pursue this company of interest, and then make an offer that will be selected over the others.
Cooper Industries is a manufacturer of heavy machinery. They began operations in 1919. By the 1950s, Cooper Industries became the market leader in engines and massive compressors which are used in pushing gas and oil through pipelines and wells. The gas and oil industry is very cyclical, and although Cooper Industries had a good history of long-term growth, they were still concerned over the impacts of the extreme volatility they had to deal with. This was a concern to management because of the impact this has on its stock. The cyclical nature of Cooper Industries had made Wall Street lose interest in the stock. Cooper had tried to reduce volatility by acquiring four different companies between 1959 and 1966. Cooper had become more diversified, but was still susceptible to general economic conditions. This led Cooper to review its acquisition strategy. It took management several months, but they established three criteria for future acquisitions. 1.The industry has to be one that Cooper could become a market leader. 2.The industry has to be “fairly stable” and the products in the industry should be “small ticket” items. 3.Only acquire companies that are leaders in their market segment. Cooper implemented this strategy in 1967 by purchasing the world’s largest manufacturer of rules and tapes, the Lufkin Rule Company. Acquiring Lufkin was the beginning of building a hand tool company with a full product line. They would be able to create synergies through future acquisitions by using the established distribution systems. The Lufkin acquisition also brought two very knowledgeable people to Cooper; the President of Lufkin and the VP of Sales. Both had a vast knowledge of the hand tool business. Cooper was able to acquire the Crescent Niagara Corporation because of a series of mis-management by Crescent. Cooper targeted Crescent because of their quality wrenches, pliers and screwdrivers – which they were eager to add to their hand tool portfolio. The Crescent acquisition took place in 1969, the next year Cooper acquired Weller Electric Corporation. Weller was the world’s leading supplier of soldering tools. These tools were sold to the industrial, electronic and consumer markets.
In 1966, Cooper established a list of criteria for future acquisitions. Cooper was successful in adding three companies from 1967 to 1970. They tried to add a fourth company that would fit their plans, but faced competition and an owner not interested in selling. This company, Nicholson, was too attractive of a takeover target for Cooper to forget about. Cooper needed to investigate what options they had, and how could they execute them to entice Nicholson’s owner to merge with Cooper.
The Nicholson File Company was the fourth company that Cooper was looking to acquire. This company has been family run since 1864. The chairman of the board had no interest in selling. Cooper believes they can turn this company around. Nicholson has revenue growth of only 2% (vs 6% which is the industry average). Margins have also declined to a third of the industry average. Because of its poor financial performance, Cooper thought they would be able to purchase this company at a lower price than they could have in the past. Nicholson had products that Cooper wanted to add to its product line. Plus, Nicholson fit the criteria that Cooper had set forth for acquisitions. Nicholson is a leader in two main product areas, rasp files and hand saws / saw blades,...