Cooper Industries Case Study

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9-274-116 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 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…show more content…
Nicholson File Company But Nicholson was too inviting a takeover target to be overlooked or ignored for long. A relatively poor sales and profit performance in recent years, conservative accounting and financial policies, and a low percentage of outstanding stock held by the Nicholson family and management all contributed to its vulnerability. Annual sales growth of 2% was far behind the industry growth rate of 6% per year, and profit margins had slipped to only one-third those of other hand tool manufacturers. In 1971, Nicholson’s common stock was trading near its lowest point in many years and well below its book value of $51.25. Lack of investor interest in the stock was reflected in its low price-earnings ratio of 10-14, which compared with 14-17 times earnings for other leading hand tool companies. The stock was clearly selling on the basis of its dividend yield, with only limited hopes for capital appreciation. (Exhibits 4 and 5 show Nicholson’s operating results and balance sheets.) What made Nicholson so attractive were its basic competitive strengths, which the familydominated management had not translated into earnings. It was one of the largest domestic manufacturers of hand tools and a leader in its two main product areas. Nicholson held a 50% share of the $50-million market for files and rasps, where

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