Cooper Industries, Inc.

Introduction: Cooper Industries, Inc. manufacturer of heavy machinery and equipment is looking for strategic acquisition to lessen its earnings volatility. Mr. Cizik, CEO of Cooper Industries is attracted by potential profits to be realized from Nicholson File Company. Mr. Cizik needs to take critical decision whether to move for control of Nicholson, which is a takeover target of two other companies. Cooper industries 1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Co 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? According to DCF valuation the price per share for Nicholson comes out to be $50.07, while multiple valuations gives us average price of $68.03. Generally multiples give higher values because the companies tend to pay premium on synergies and goodwill to the target. DCF Valuation of Nicholson

FCF's of Nicholson i

Net Sales WACC fo Estimated COGS Cost of Debt SG&A
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$70.Multiple Valuation PV of CF's Terminal Value Exchange ratio offer priceof Coope PV of TV Summary Cooper St price PV+ TV ratio Debt Nicholson has potential of increasing its sales by 6% each year and if Cooper acquires it thank the projected stock price for 72-76 are $26.43. $54.17. Cash Shares that cooper Lufkin Rule Compa .70.

25.03. The BV of the stock is $51. We believe Cooper can afford to pay Nicholson maximum price of $ 51. What are the concerns and what are the bargaining positions of each group of Nicholson stockholders? What must Copper offer each group in order to acquire its shares? Netpost merger Sales EPS COGS NI applicable to CS SG&A NI Nicholson IE cooper current out Depriciation shares Other deductions .2M.67 -$68. With our per share price range $35.92 in 1976. Nicholson Stock is trading at $44 and the tender offers made by other bidder i. 3. The acquisition will increase the Cooper EPS from $2.e Porter were $42.467 new shares for the purchase of Nicholson without diluting its EPS.52 in 1972 to $3. Projected Nicholson The merger will also help Cooper gain significant share in Industrial markets.74 & $79. Currently.95. Within next 5 years Nicholson MV can increase by 145% from $29. Cooper can issue 895.$76.24M to $71.25 = BV and still keep the acquisition attractive because of the synergies and potential increase in Nicholson value after acquisition.

Each also desired an outcome that would prove favorable to their investment decisions.000 shares were only concerned about short term gains and will support who ever had the highest price point.Nicholson has several different groups of shareholders. Coop with its 29. Porter Cooper Industries Shares Supporting Nicholson family & Owned by VLN . Due to these fears of Porter’s management.000 shares should negotiate with Porter on an agreeable exchange rate for them to get Porter’s shares when they make an open offer for NICK. However. This is not likely to be acceptable to Nicholson's management. They probably will not be willing to negotiate with COOP. Each group has its own unique perspective on Nicholson’s eventual merger and partner.000 Nicholson (NICK) shares. their share total represents 30% of NICK outstanding standing shares and 60% of the total number of shares the Cooper (COOP) needs to gain a majority ownership in the Nicholson company.000 shares. They do not want to exchange these shares for VLN preferred shares. making it difficult for them to recoup the cost of the NICK shares they currently own. Speculators who had 75. they will sell at approx $50 / share to Cooper. their offer is dubious in terms of the value of the preferred stock in the future. COOP need to convince speculators and unaccounted shareholders that the price being offered is the best price that they would be able to get. Cooper's strategic vision is to improve operations at Nicholson.000 shares and they want control of Nicholson. The Nicholson family had 117. This would require retiring certain lines of business and cutting down on some duplicate operations to create greater operational synergies. COOP can assure NICK management that they will be allowed to play an active role in the due diligence process and in any decision to get rid of duplicate functions. They also need to convince them that they can obtain and maintain better synergies and operational efficiencies that will lead to higher Estimated Distribu Shares Supporting H.000 they won't sell unless assured of management independence. unless COOP could make similar overtures they would prefer to merge with VLN and would more than likely encouraged their shareholders to do the same – these were uncommitted shareholders with 172. VLN has assured them of management independence. VLN has 14. Porter fears that VLN lackluster performance will continue into the future and the stock will not have much growth. They can also assure them that they will be given management independence with dotted line reporting to the CEO of COOP. The shares that Porter possess is also a bargaining point for them. When deciding on a share price from valuation COOP needs to keep these share holders in mind also.K. There is the Porter Company with 177.

What should Mr. earnings dividends and better investment for all. 4. what offer must Cooper management make in terms of the dollar value and the form of payments? 5. this could lead to friction between the two operations post-merger. if cooper takes control of NICK without the consent of the Nicholson management and shareholders. There could be integration issues for Cooper with Nicholson. Cizik recommend that the Cooper management do? NI applicable to CS Projected Cooper N C SH's after acquisition Projected Cooper E . 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. Also.profits. They are trying to generate higher profits. cash flows and ROE on the assumption that they can make changes in Nicholson's operations and bring about effective synergies and some cost savings.

Cooper Ind.Condensed Operating & stockholder Info. (millions of dollars except per-share data) Operations Net sales COGS Dep SG&A IE .