Cooper Industries

Better Essays
Advanced Financial Management
Cooper Industries Case

March 30, 2009

Jesse Van Gestel

Cooper Industries, Inc.

1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Company in May 1972?

2. 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.]

3. 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?

4. On the assumption that the Cooper management wants to acquire at least 80% of the outstanding Nicholson stock and make the same
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Nicholson’s European distribution system could also be very helpful in expanding Cooper’s sales in Europe. As Cooper Industries sells more of their product to industry and Nicholson to the consumer market by combining the companies they may be able to increase sales of both product lines to the market segment they are weaker in.

2. FMV of Nicholson = $172,630,000
Per share value = $295.60
I was not able to come up with a valid firm value, as there was no information regarding how much working capital will be increased by Nicholson over the next ten years, nor was there any information available regarding how much capital expenditures would be increased. Capital expenditures were assumed to equal depreciation and it was assumed working capital was not growing.

H.K. Porter bought their shares with the intention of taking over Nicholson themselves, however as they were unable to acquire enough shares to buy the company they are now looking to sell their shares. They would obviously like to do this profitably if possible and their primary concerns are therefore the price and liquidity. They are looking to get the most money out the stocks that they can and so price is of primary importance in bargaining with them. However, they also want to be able to quickly liquidate their stocks and so would prefer to receive cash. Though they have expressed that convertible preferred stock would be acceptable as they know Cooper stock is stable and is easily
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