Cooper Industries Harvard Case Solution & Analysis

Cooper Industries Case Study Solution 

 If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Co?

If I was Mr. Cizik, then I would definitely try to gain control of Nicholson File co. because it would be an opportunity for me to leverage complementary product offerings between Cooper and Nicholson. Not only that, but it would also be an opportunity to increase long-term growth potential by increasing the exposure of respective product lines to new markets and customers.

Gaining control would create synergy between both the companies and would reduce the cost of goods sold, along with general and admin expense. Moreover, it would reduce the concern over heavy dependence on sales on oil and gas industries along with sudden fluctuations of earnings caused by the cyclical nature of heavy machinery and equipment sales.

What is the maximum price that Cooper can afford to pay for Nicholson and still keep the acquisition attractive from the standpoint of Cooper?

The maximum price that Cooper can offer to pay Nicholson is $27.83. The working is shown in the excel sheet.

What are the concerns and what is the bargaining position of each group of Nicholson stockholders? What must Copper offer each group in order to acquire its shares?

Cooper was not alone regarding its interest in Nicholson, where H.K porter owned 44000 shares since 1967 as well as it was an active stakeholder since the acquisition. Due to this, Nicholson’s management was alarmed by both the proposal and proposer.

The bargaining power of all the stockholders is high because the company is profitable and everyone wants to gain high return from their investments.

It is suggested that Cooper must offer $27.83 to all the stakeholder in order to acquire all the shares.

On the assumption that Cooper’s management wants to acquire at least 80% of the outstanding shares of Nicholson and to make the same offer to all stockholders, what offer must Cooper’s management make in terms of the dollar value and the form of payments?

If the company wants to acquire at least 80% of the outstanding shares of Nicholson and wants to gain control, then in that case, the maximum price offered by Cooper should be $89.5, because, if after getting control at $89.5, the company can cover its cost.Working is shown in the excel sheet.

What should Mr. Cizik recommend to Cooper’s Board of Directors / management?

The recommendation of Mr. Cizik should to the board of the directors should be in favor of Nicholson as it seems to be a better option for the company to increase its profitability and to gain the benefits as stated above. In addition, they should offer at least $27.83 to all stockholders to gain control of the company. However, if they did not agree at that price, then the maximum price offered by Cooper should be $89.5.

Cooper Industries Harvard Case Solution & Analysis

 

Exhibits

Cooper Industries Balance Sheet - in millions of Dollars
 Pre-mergerPost-merger
 197119721972
Cash99.5410.56
Accounts Receivable4951.9460.1
Inventories5760.4278.78
Other223
       Current Assets117123.9152.44
Net Plant & Equipment474763
Other8811
       Total assets172178.9226.44
 
Accounts Payable303234.04
Accrued Taxes33.333.33
Long - Term Debt Due557
        Current Liabilities3840.3344.37
Long Term Debt343446
Deferred Taxes44.244.24
Preferred Stock111111
         Common Equity (4,218,691 shares outstanding)8589.33120.83
Total Liabilities & Net Worth172178.9226.44
 
Number of Shares Outstanding4,218,6914,218,6925,425,214
Book Value20.1484299321.174809622.27193357
Debt / (Debt + Equity) Ratio28.57%27.57%27.57%
Debt to Sales Ratio16.50%14.17%15.40%
Interest Coverage 122518
Cooper's 1972 return from the merger (Nicholson Earning/Value paid by Cooper)11.09%

 

Nicholson File Balance Sheet - in millions of Dollars
 Before merger
 19711972
Cash1.001.02
Accounts Receivable8.008.16
Inventories18.0018.36
Other1.001
       Current Assets28.0028.54
Net Plant & Equipment16.0016
Investment in subsidiaries3.003
       Total assets47.0047.54
 
Accounts Payable2.002.04
Other2.002
        Current Liabilities4.004.04
Long Term Debt12.0012
Deferred Taxes0.000
Preferred Stock0.000
         Common Equity (4,218,691 shares outstanding)31.0031.5
Total Liabilities & Net Worth47.0047.54
 
Number of Shares Outstanding584,000584,000
Debt / (Debt + Equity) Ratio27.91%27.59%
Debt to Sales Ratio21.70%21.27%
Interest Coverage 43
Working Capital24.0024.50
Working Capital / sales43.40%43.44%

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