Essay about Cooper Industries, Inc.

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The management of Cooper Industries, Inc., is considering whether to acquire the Nicholson File Company, a leading manufacturer of hand tools. The Nicholson family and other members of the management group own about 20% of the Nicholson stock; the remainder is publicly held. From the standpoint of Cooper, an affirmative decision may involve Cooper in a bidding contest with two other companies, which have already purchased part of the outstanding Nicholson stock and made tender offers in an effort to acquire control of Nicholson. If Cooper decides to proceed, it must determine what price it will have to pay in order to acquire control of Nicholson and whether it can reasonably afford to pay this price for Nicholson. These decisions must…show more content…
1974 1975 1976
Maximum number of Cooper shares that could be issued for Nicholson shares without diluting Cooper’s earnings per share (millions) .96 1.34 1.45 1.5 1.46

Number of Nicholson shares outstanding (millions) .584 .584 .584 .584 .584

Number of Cooper shares that could be offered for one Nicholson share without diluting Cooper’s earnings per share for the year in question 1.64 2.29 2.48 2.58 2.50 Exhibit TN-1 Calculation of Value of Nicholson to Cooper Based on Discounted Cash Flow Analysis
(millions of dollars except per share data)

1972 1973 1974 1975 1976 1977 1978 1979 1980 1981
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Projected cash flow from operationsa
Terminal value at end of 10 yearsb
Deduct:
Increase in net working capitalc Assumed capital expendituresd

Cash flows to Cooper
Present value factor

Present value of cash flows
Total present value of cash flows
Less: Long-term debt
Maximum value for all outstanding Nicholson stock
Maximum value per share of Nicholson stock

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