Cooper Industries Inc. Case

Cooper Industries Inc., a company with considerable financial strength and solid management, has a strong record of acquiring companies in a friendly takeover way, aiming at: expanding its portfolio into new markets, gaining the know-how in high quality product lines and making synergies that would lead to economies of scale. Within this context, Nicholson Company is under scope to be acquired.  Although Cooper had made an offer, which was rejected initially; at the moment in time examined by the paper (May 1972) two new offers from VLN and Porter companies are on the table. However, the conflicts of interest of these two companies opened up a new opportunity for Cooper Inc. to join in an attempt to break a new deal. This report examines the case of the takeover of Nicholson Company by Cooper, dealing with the valuation of the first, as well as other qualitative criteria to support the view on the acquisition.

We recommend that Cooper Industries should go ahead with the acquisition of Nicholson File Company because the synergy created from acquiring and running the company under the management of Cooper is greater than the recommend price of acquisition. We recommend that, in a cash acquisition, Cooper offer $50 per share for share tendered in the stock market, and Cooper may even pay up to $55 per share for stockholder with large amount of Nicholson outstanding stock. In a stock acquisition, Cooper should offer at most 1.45 million of its common stock for the 584k Nicholson stock. By so doing, current stockholders at Cooper would not suffer share dilution as a result of the acquisition. Finally, we recommend that Cooper Industries should approach the acquisition in a friendly manner so that it can retain Nicholson’s employees and maintain a good relationship with the Nicholson family and management, who Cooper has to work with to exploit the synergy.