Cooper Industries Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

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-merger	Post-merger
	1971	1972	1972
Cash	9	9.54	10.56
Accounts Receivable	49	51.94	60.1
Inventories	57	60.42	78.78
Other	2	2	3
Current Assets	117	123.9	152.44
Net Plant & Equipment	47	47	63
Other	8	8	11
Total assets	172	178.9	226.44

Accounts Payable	30	32	34.04
Accrued Taxes	3	3.33	3.33
Long - Term Debt Due	5	5	7
Current Liabilities	38	40.33	44.37
Long Term Debt	34	34	46
Deferred Taxes	4	4.24	4.24
Preferred Stock	11	11	11
Common Equity (4,218,691 shares outstanding)	85	89.33	120.83
Total Liabilities & Net Worth	172	178.9	226.44

Number of Shares Outstanding	4,218,691	4,218,692	5,425,214
Book Value	20.14842993	21.1748096	22.27193357
Debt / (Debt + Equity) Ratio	28.57%	27.57%	27.57%
Debt to Sales Ratio	16.50%	14.17%	15.40%
Interest Coverage	12	25	18
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
	1971	1972
Cash	1.00	1.02
Accounts Receivable	8.00	8.16
Inventories	18.00	18.36
Other	1.00	1
Current Assets	28.00	28.54
Net Plant & Equipment	16.00	16
Investment in subsidiaries	3.00	3
Total assets	47.00	47.54

Accounts Payable	2.00	2.04
Other	2.00	2
Current Liabilities	4.00	4.04
Long Term Debt	12.00	12
Deferred Taxes	0.00	0
Preferred Stock	0.00	0
Common Equity (4,218,691 shares outstanding)	31.00	31.5
Total Liabilities & Net Worth	47.00	47.54

Number of Shares Outstanding	584,000	584,000
Debt / (Debt + Equity) Ratio	27.91%	27.59%
Debt to Sales Ratio	21.70%	21.27%
Interest Coverage	4	3
Working Capital	24.00	24.50
Working Capital / sales	43.40%	43.44%