Cooper Industries Inc.
Based on the given information in the case study regarding the acquisition of Nicholson File Company by Cooper Industries, there is no question that Cooper should try to gain control of Nicholson. This decision is based on an analysis of the bargaining positions of each group of Nicholson stockholders which have disparate goals and needs that need to be met. In addition, an appropriate payment method and specific dollar value based on a competitor’s offer and Cooper financial data was decided. The remainder of this paper will provide the analysis and rationale for this determination.
Should Cooper Industries Acquire Nicholson File Company?
Cooper Industries has been expanding through diversification since 1996. Cooper’s requirements to acquire a company has three major components. The target company must be:
1. In an industry in which Cooper could become a major player
2. In an industry that is fairly stable, with a broad market for the products and a product line of ‘small ticket’ items; and
3. A leader in its market segment.
When looking at the criteria that Cizik’s company (Cooper Industries), set forth relative to acquisitions, the acquisition of Nicholson meets all three objectives plus has significant potential short and long-term potential. Cooper management feels that by eliminating redundancy and streamlining Nicholson’s operations this potential can be realized.
Currently, Nicholson’s financial history boasts a 2% increase in profit annually but this percentage is way below the industry average of 6%. Cooper management proposed that if Nicholson stops selling to every market, increased efficiencies would result and cut cost of goods sold from 69% of sales to 65%. It was also suggested that the acquisition could lower selling, general, and administrative expenses from 22% of sales to 19%.
Nicholson’s position in the file and rasp market where it holds a 50% market share of a $50 million dollar market meets all three of Cooper’s objectives. Furthermore, Nicholson’s brand name within the hand saw and saw blade industry is strong and Nicholson holds a 9% market share in the $200 million dollar – their only major competitor was Sears and Diston who held a larger market share.
Shareholder Standings
At the time of the proposed merger between Nicholson File and VLN, there were a t...
... middle of paper ...
... per share it had requested. As a result, it appears that Cooper should be successful persuading Nicholson shareholders and unaccounted for shareholders to accept the offer, and in return acquire at least 80% of the outstanding Nicholson shares of stock
References
Chang, S. Suk, D. Failed takeovers, methods of payment, and bidder returns, Financial Review. 33 (2), May 1998.
Dhaliwal, D.S., Newberry, K.J., Weaver, C.D. Corporate Taxes and Financing Methods for Taxable Acquisitions, Contemporary Accounting Research. 22 (1), Spring 2005.
Harvard Business School case 274-116. Cooper Industries, Inc. Retrieved on August 31, 2008, from University of Phoenix, Resource, FIN/545 web site: https://mycampus.phoenix.edu/secure/resource/resource
European Business Journal; 1990 3rd Quarter, Vol. 2 Issue 3, p16, 9p, Article
Kinsell, Krik. (June 2005). Factors to consider when planning consolidation. Franchising World, Vol. 37, Issue 6, pp. 63–65. Retrieved September 2, 2008, from: kirk.kinsell@ichotelsgroup.com
Nicholson File Company records. Retrieved on September 2, 2008, from: http://www.rihs.org/mssinv/Mss587.htm
Buchanan, Robin, W.T., Acquiring in the United States
Grand Metropolitan PLC is the world’s largest wine and spirits seller. It mainly operated in London, USA. In 1991, it beats market expectation with a 4.8% increase in pretax profits, and the company Chairman stated that company’s goal “to constantly improve on”. Despite the great performance in the world recession in 1991, the price of GrandMet shares was 10% below the average price/earnings ratio of the companies in the Standard & Poor’s 500 index. And more important, rumors had that GrandMet, valued at more than $14 billion in the stock market, maybe a takeover target. The management dilemma is to understand why the company’s stock is traded below of what considered being the right price and whether the company is truly being undervalued by the market or there are consistent issues with negative NPV projects and lines of businesses.
Brickley, J 1996, Incentive Conflicts and Contractual Restraints: Evidence from Franchising, Journal of Law & Economics, p. 173.
The second section will be a report to the board of directors that identifies a synergistic acquisition candidate for Target. This section will identify Target's proposed acquisition terms, price, financing, and potential negotiation strategies. This segment will also include price / earnings ratios, book value, current market value, and liquidation based on the supporting financial data. Also in this part will be a discussion of the general and specific risks inherent in an acquisition strategy.
A merger is a partial or total combination of two separate business firms and forming of a new one. There are predominantly two kinds of mergers: partial and complete. Partial merger usually involves the combination of joint ventures and inter-corporate stock purchases. Complete mergers are results in blending of identities and the creation of a single succeeding firm. (Hicks, 2012, p 491). Mergers in the healthcare sector, particularly horizontal hospital mergers wherein two or more hospitals merge into a single corporation, are increasing both in frequency and importance. (Gaughan, 2002). This paper is an attempt to study the impact of the merger of two competing healthcare organization and will also attempt to propose appropriate clinical and managerial interventions.
Before granting merger forms The Bureau of Competition was committed to ensuring that involved companies do not create a monopoly in the market and hence reduce competition that may also affect the integrity of the services provided. In most cases the bureau controlling the start and the running of mergers uses the Hart-Scott-Rodino amendments to the Clayton Act (Clark, 2011). Before becoming a part of the merger it is important that FTC does an analysis of the merger to evaluate the effects the merger may have on the businesses. In addition, it is important that FTC gets to have a clear picture of the situation and how it is expected to affect the relations...
Bagwell, Laurie Simon, and John B. Shoven. "Cash Distributions to Shareholders." Journal of Economic Perspectives 3.3 (1989): 129-40. Print.
With increasing transportation costs and tighter margins there is a possibility that some large specialty retail players will consolidate assets, knowledge and outsourcing capabilities in order to generate economies of scale and scope.
Negative Results. The negative outcomes of consolidation are often seen in the financial and public relations aspect of consolidating. One of the most prominent and controversial as...
The $55 value is on the lower range of the analyst eztimates, with a best guess estimate of $67.94. Since the value of the stock had been below $45 for 4 months, the offer of 55 dollars represented a 29% premium to investors. Bollenbach knew that management would be resistant of any attempt to be acquired, regardless of price, because of failed previous attempts to negotiate a friendly merger at year end 1996. The 55-dollar benchmark created an expectation for ITT management to achieve that level, or higher and the premium is enough to demonstrate to investors it is a real offer. Their support will be key as they will have a vote deciding the fate of the poison pill provisions which need to be removed to make the deal necessary.
Brealey, Richard A., and Myers, Stewart C. Principles of Corporate Finance. Sixth ed. McGraw Hill, New York, © 2000.
In 1998, Klein refers again to the Fisher body (FB) - General Motors (GM) Case, in his paper "Vertical Integration as organised ownership: the Fisher body - General motors Relationship Revisited". From the opportunistic behaviour perspective, Trachtman (1996) mentions the case of FB - GM. Others also specify that the case has been turned into a famous example such as Che & Hausch, (1999), Zingales, (2000); Itoh & Morita (2006) and described as "the paradigm example of Vertical integration" (Baird, 2003, p24) and has been widely used, (Williamson, 2002).
The benefits of these assumptions are that while maintaining the current growth rate of 13%; we can maintain our COGS. One of the major factors contributing to the firm’s poor profit margin is operating expenses.
Berk, J., & DeMarzo, P. (2011). Corporate finance: The core, second edition. (2nd ed.). Boston, MA: Prentice Hall.
Davidson Motor Company started in a lOxl5-foot shed in the Davidson family's backyard in Milwaukee, Wisconsin. This case was prepared by Professor Patricia A. Ryan of Colorado State. This case was edited for 5MBP and Cases in 5MBP-9th and 10th Edition. The copyright holders are solely responsible for the case content. Copyright @2002 and 2005 by Patricia A. Ryan and Thomas L. Wheelen. Reprint permission is solely granted to the publisher, Prentice Hall, for the books, Strategic Management and Business Policy-10th Edition (and the International version of this book) and Cases in Strategic Management and Business Policy-10th Edition by the copyright holders, Patricia A. Ryan and Thomas L. Wheel en. Any other publication of the case (translation, any form of electronics or other media) or sold (any form of partnership) to another publisher will be in violation of copyright law, unless Patricia A. Ryan and Thomas L. Wheelen have granted an additional written reprint permission.
In the world today, many mergers and acquisitions are happening as a result of financial losses, gaining an advantage on a competitor, increasing capabilities, and strengthening services by diversifying the products. There are numerous other reasons, but this paper will focus on the reasons indicated above.