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.
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
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: email@example.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
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