Cooper Industries Case Stud1
Cooper Industries Case Study
Introduction: Cooper Industries Inc., is considering an acquisition of Nicholson File Company, a candidate for the company’s diversification program. Cooper CEO Robert Cizik approached Nicholson three years prior and was rejected, but the circumstances have changed and there is a real opportunity for Cooper to acquire Nicholson. Our team of analysts will evaluate the company’s financials to determine whether or not this is a smart acquisition for Cooper.
Based off our research we believe Mr. Cizik of Cooper Industries should try and gain control of Nicholson File Company. Below we will show why we believe this is a smart acquisition. The reason Cooper should work to acquire is the vast amounts of synergy that will be acquired by merging companies. Cooper Industries has been involved in the hand tool business for some time and the following things will be gained by merging:
-Reduction of cost of goods sold for both companies could be reduced from 69% to 65%.
-Nicholson has a large distribution center, particularly in Europe, that Cooper can use and take advantage of. Nicholson has 48 direct sales people, and 28 file and saw engineers marketing its rasp, file and saw products. Additionally they have 2100 hardware wholesalers in the US and Canada, these wholesalers sell to 53000 retail outlets nationwide. Nicholson File Products are sold in 137 countries through 140 local sales representatives.
-In addition, due to an overlap administrative expenses can be reduced from 22% to 19%.
-If properly managed and marketed Nicholson should be able to grow 6-7% annually, as opposed to the 2% the currently have, well below the industry average.
The first thing our team of analysts did was valuate Nicholson File to determine what Cooper can afford to pay for Nicholson while still keeping the acquisition attractive on their end. We used the Discount Cash Flow Method to value the company, and these were our results.
5 Year Forecast
Nicholson
Introduction: Cooper Industries Inc., is considering an acquisition of Nicholson File Company, a candidate for the company’s diversification program. Cooper CEO Robert Cizik approached Nicholson three years prior and was rejected, but the circumstances have changed and there is a real opportunity for Cooper to acquire Nicholson. Our team of analysts will evaluate the company’s financials to determine whether or not this is a smart acquisition for Cooper.
Based off our research we believe Mr. Cizik of Cooper Industries should try and gain control of Nicholson File Company. Below we will show why we believe this is a smart acquisition. The reason Cooper should work to acquire is the vast amounts of synergy that will be acquired by merging companies. Cooper Industries has been involved in the hand tool business for some time and the following things will be gained by merging:
-Reduction of cost of goods sold for both companies could be reduced from 69% to 65%.
-Nicholson has a large distribution center, particularly in Europe, that Cooper can use and take advantage of. Nicholson has 48 direct sales people, and 28 file and saw engineers marketing its rasp, file and saw products. Additionally they have 2100 hardware wholesalers in the US and Canada, these wholesalers sell to 53000 retail outlets nationwide. Nicholson File Products are sold in 137 countries through 140 local sales representatives.
-In addition, due to an overlap administrative expenses can be reduced from 22% to 19%.
-If properly managed and marketed Nicholson should be able to grow 6-7% annually, as opposed to the 2% the currently have, well below the industry average.
The first thing our team of analysts did was valuate Nicholson File to determine what Cooper can afford to pay for Nicholson while still keeping the acquisition attractive on their end. We used the Discount Cash Flow Method to value the company, and these were our results.
5 Year Forecast
Nicholson