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Topics: Stock market, Stock, Mergers and acquisitions Pages: 18 (1473 words) Published: May 30, 2014
Transcript of Cooper Industries, Inc
Cooper Industries, Inc

Cooper Industries, Inc
Aaron, Kelsi, Luther, Stephanie, Tom, Will
Competition to Takeover and Opportunity for Cooper
Valuation
High Volatility Lead to Change in Acquisition Strategy
Nicholson File Company
Deal Structure
Recommendation
Presentation Outline
1. Background of Cooper Industries
2. Cooper Industries strategy
3. Target acquisition - Nicholson File Company
4. Other offers and what is now the opportunity for Cooper
5. Valuation
6. Recommendation
Background - Cooper Industries
Management Concerns
High dependence of sales to the oil and gas industries
High earnings volatility because of cyclical nature of machinery sales Acquisition Strategy
Three criteria for new acquisitions:
Industry where Cooper could become a major leader
Stable industry with no reliance on large customers or a few large sales a year Acquire only leading companies in their respective market segments Recent acquisitions
The new strategy lead to Cooper acquiring three firms from 1967-1970 Lufkin Rule Company - worlds largest manufacturer of rulers and tapes Crescent Niagara - well known, high quality wrenches, pliers and screwdrivers Weller Electric Corporation - leading supplier of soldering tools Nicholson File Company

Established 1864
Leading manufacturer of hand tools
Family dominated management
Past attempts to merge with Nicholson failed
Acquisition of Nicholson
Is it consistent with acquisition strategy?
Motive
Will acquiring Nicholson reduce instability in EPS?
Will it help stock price reflect true value?

Coopers motivation for acquisition
Five motives for acquisition
Undervaluation
Diversification
Synergies
Control
Management self-interest
Past acquisition strategy/motives
Diversification
Decrease instability in EPS
Cyclical nature of sales
Fluctuating oil price
4 acquisitions between 1959-1966

Cooper Industries, Inc
First to show an interest in Nicholson File Company
In 1969 approached Nicholson File Company
Attempts to form a relationship rejected
H K Porter Company
Already own 44,000 shares of total 584,000
3rd March 1972, announce a tender for an additional 437,000
Offer to pay $42 per share in cash
Takeover threatened Nicholson's operating independence
Product lines likely to be eliminated in cost cutting
Cooper should proceed with its takeover bid for Nicholson.
Recommended exchange ratio of 2.083 Cooper shares for every 1 share in Nicholson Satisfies both of Porter’s conditions, thereby securing their support. Cooper’s commitment to making a friendly takeover will benefit Nicholson.

What really happened?
Cooper offered to exchange 1 share of new Cooper convertible, preferred stock for each share in Nicholson. Cooper and Porter’s combined 47% holding in Nicholson left Nicholson with little choice. Cooper completed the takeover of Nicholson in October 1972

Based on Jim Harvey's speech structures
Is Nicholson an attractive acquisition?
Operations in Heavy machinery and equipment
Reduce instability in EPS and increase stock price
Diversify against fluctuating oil price

Motives behind past 3 acquisitions
Diversification (of product size/ turnover)
Synergies
Control

Is VLN really the white knight?
VLN Corporation strike agreement
Cooper Industries Inc.
Approach Nicholson File Company a second time
Willing to make a better offer, if they commit now
Counter offer later withdrawn
Appear to be white knight in the takeover conflict
Offering preferred stock, initially convertible into 5 common stock Preferred stock paying $1.60 annual dividend
Tax free exchange on securities
Nicholson guaranteed continued operating independence
Value of preferred shares received dependent on common stock Common stock has not paid dividends since 1970
No sign of significant future growth
Dividend yield below the risk free rate and current market yield Unwilling to exchange Nicholson shares for...
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