Cooper Industries

871 Words Oct 26th, 2015 4 Pages
Sample Answer For Cooper Industries Case Study
Cooper Industries Inc. is the manufacturer and leading producer of engines and big compressors for oil and gas extraction industry. The firm had been heavily dependent on oil and gas sector for its sales and major earning; fluctuations due to cyclic nature of industry concerned its management. Although long-term sales and earnings growth for Cooper had been above average, its stock was less attractive to investors due to higher risk and earnings volatility. Cooper’s earlier acquisitions resulted in diversity of markets but did not result in reduction of earnings volatility.To reduce the risk, management initiated an acquisition strategy to diversify its product portfolio. An acquisition
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Cizik recommend that the Cooper management do?
ANALYSIS
Nicholson is controlled and managed by Nicholson family. Chairman of the board, Paul Nicholson put heavy emphasis on managerial and operational independence. This was the reason of earlier re-buff of Cooper’s approach for Nicholson’s acquisition. Nicholson is an attractive takeover target due to tremendous potential for improvement despite poor sales and profit performance and low profit margins resulting from conservative financial policies. Company’s annual sales growth was only 2% compared to 6% growth rate of the industry. Nicholson’s shares were trading at historic lows and below book value of $51.25. Twenty percent of shares were held by management and Nicholson family.
CONTROL OF NICHOLSON FILE COMPANY
An important question is whether or not Nicholson meets acquisition criteria of Cooper? This criteria was based on three variables: 1. Acquisition should result in leadership in the market segment of Target Company. 2. Stable and broad market for products with product-line of small items, eliminating companies with dependence on few customers. 3. Acquisition of leading companies only.
Cooper established a product policy of building full product-line of hand tools and its acquisitions were driven by this strategy along with the acquisition policy. Since 1967 Cooper had acquired three companies starting with the acquisition of Lufkin Rule Company that was world’s largest manufacturer of measuring

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