Cooper Industries is a largely diversified manufacturer of electrical and general industrial products, and energy related machinery and equipment. The company operates in three different business segments with 21 separate profit centers. These segments include electrical and electronic, commercial and industrial, compression, drilling and energy equipment. In 1989 Cooper Industries bid a $21-a-share tender offer to acquire Champion Spark Plug, manufacturer of auto spark plugs, as a counter offer for the Dana Corp.'s $17.50-a-share bid. Also, in the mean time, Cooper Industries was considering a $700 million bid for Cameron Iron Works. Even though purchasing either or both companies will give operational and organizational advantages, there were high financial risks involved. Undertaking both acquisitions would result in a debt to capitalization ratio of 55% to 60%.
Cooper's most prominent corporate strategy is vertical integration. Cooper mostly utilized backward vertical integration to gain closer access to raw materials. Cooper Industries acquired more than 60 manufacturing companies over a thirty year span in order to increase the size and the scope of the company. Most of the acquired companies made it possible for Cooper to be independent of the outside environment and giving full control of the manufacturing process concerning their business while avoiding anti-trust allegations. At the time of the take over, the Management Development & Planning division would implement the corporate strategy in a period of three to five years. This involved diversification and elimination of the products that are poor sellers. In some cases the production plant is relocated and the staff is reorganized for the best efficient set up.
Cooper's bid to take over Champion is risky. Cooper's automotive division accounts for less...