Advanced Financial Management
Cooper Industries Case
March 30, 2009
Jesse Van Gestel
Cooper Industries, Inc.
If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Company in May 1972?
What is the maximum price that Cooper can afford to pay for Nicholson and still keep the acquisition attractive from the standpoint of Cooper? [Treasury Bills yielded 5.6% in May 1972.]
What are the concerns and what is the bargaining position of each group of Nicholson stockholders? What must Cooper offer group in order to acquire its shares?
On the assumption that the Cooper management wants to acquire at least 80% of the outstanding Nicholson stock and make the same offer to all stockholders, what offer must Cooper management make in terms of dollar value and of the form of payment (cash, stock, debt)?
What should Mr. Cizik recommend that the cooper management do?
Mr. Cizik should make an attempt to gain control of the Nicholson File Company. Cooper Industries has been pursuing a policy of expansion through the acquisition of other companies and this strategy appears to be working well for them. They have acquired a number of companies and have been successful in integrating them into Cooper Industries. They have established three criteria that potential companies for acquisition must meet and Nicholson meets all three criteria. Nicholson holds 50% of the market share in files and rasps, its main products, therefore implying that Cooper could be a “major factor” in this industry. Nicholson is also a leading company in their markets and it is a stable company in terms of not being dependent on a few major customers. Nicholson has a great deal of potential for greater sales growth as it is only growing sales at 2% compared with the industry average of 7%. Due to the strengths of its products and distribution system they should be capable of raising growth rates to the industry...
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