REV. NOVEMBER 10, 1993
THOMAS R. PIPER
Cooper Industries, Inc.
In May 1972 Robert Cizik, executive vice president of Cooper Industries, Inc., was reviewing acquisition candidates for his company’s diversification program. One of the companies, Nicholson File Company, had been approached by Cooper Industries three years earlier but had rejected all overtures. Now, however, Nicholson was in the middle of a takeover fight that might provide Cooper with a chance to gain control.
Cooper Industries was organized in 1919 as a manufacturer of heavy machinery and equipment. By the mid-1950s it was a leading producer of engines and massive compressors used to force natural gas through pipelines and oil out of wells. Management was concerned, however, over its heavy dependence on sales to the oil and gas industries and the violent fluctuation of earnings caused by the cyclical nature of heavy machinery and equipment sales. Although the company’s long-term sales and earnings growth had been above average, its cyclical nature had dampened Wall Street’s interest in the stock substantially. (Cooper’s historical operating results and financial condition are summarized in Exhibits 1 and 2.) Initial efforts to lessen the earnings volatility were not successful. Between 1959 and 1966, Cooper acquired (1) a supplier of portable industrial power tools, (2) a manufacturer of small industrial air and process compressors, (3) a maker of small pumps and compressors for oil field applications, and (4) a producer of tire-changing tools for the automotive market. The acquisitions broadened Cooper’s markets but left it still highly sensitive to general economic conditions. In 1966 Cooper began a full review of its acquisition strategy. After several months of study, three criteria were established for all acquisitions. First, the industry should be one in which Cooper could become a major factor. This requirement was in line with management’s goal of leadership within a few distinct areas of business. Second, the industry should be fairly stable, with a broad market for the products and a product line of “small ticket” items. This product definition was intended to eliminate any company that had undue profit dependence on a single customer or several large sales per year. Finally, it was decided to acquire only leading companies in their respective market segments. This new strategy was initially implemented with the acquisition in 1967 of the Lufkin Rule Company, the world’s largest manufacturer of measuring rules and tapes. Cooper acquired a quality product line, an established distribution system of 35,000 retail hardware stores throughout the United States, and plants in the United States, Canada, and Mexico. It also gained the services of William Rector, president of Lufkin, and Hal Stevens, vice president of sales. Both were extremely ____________________________________________________________
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Cooper Industries, Inc.
knowledgeable in the hand tool business and had worked together effectively for years. Their goal was to build through acquisition a hand tool company with a full product line that would use a...