Cooper Nicholson case

Assumptions made for the case

Rate of Discount = 11%
Depreciation remains constant as the 1971 value.
Interest expense is constant for Nicholson co.
CAPEX is at zero value.
Incremental NWC is at the same rate as the growth of the company.
COGS and SGA as a percentage of sales was calculated using median of
values of the last 5 years and it remains constant at the calculated value.
Value of Debt is continued to be same as balance sheet value of 1971 for
Nicholson.
Interest rate is calculated as an average for Cooper industries and it at
7.7% value.

Case 1 : Nicholson without merger

Income statement
OPERATIONS ($
MILLIONS)
Net sales
Cost of goods sold
Selling, general & admin.
Depreciation expense
Interest expense
Other deductions
INCOME BEFORE
TAXES
Taxes (a)
NET INCOME
(+) Depr

1972
56.41
38.92
12.41
2.1
0.8
0.18

1973
57.53
39.70
12.66
2.1
0.8
0.18

1974
58.68
40.49
12.91
2.1
0.8
0.18

1975
59.86
41.30
13.17
2.1
0.8
0.18

1976
61.06
42.13
13.43
2.1
0.8
0.18

(-) NWC

2.00
0.80
1.20
2.1
3.30
0.48

2.10
0.84
1.26
2.1
3.36
0.49

2.20
0.88
1.32
2.1
3.42
0.50

2.31
0.92
1.38
2.1
3.48
0.51

2.42
0.97
1.45
2.1
3.55
0.52

FCF

2.82

2.87

2.92

2.97

3.03

CV

NPV = $31.14 mn
Value of Equity = $19.14 mn
Value per share = $32.77
EPS = $2.26

34.33
37.36

Case 2 : Nicholson with merger

Income statement
OPERATIONS ($
MILLIONS)
Net sales
Cost of goods sold
Selling, general &
admin.
Depreciation expense
Interest expense
Other deductions
INCOME BEFORE
TAXES
Taxes (a)
NET INCOME

1972
58.62
38.10

1973
62.14
40.39

1974
65.86
42.81

1975
69.81
45.38

1976
74.00
48.10

11.14
2.1
0.8
0.18

11.81
2.1
0.8
0.18

12.51
2.1
0.8
0.18

13.26
2.1
0.8
0.18

14.06
2.1
0.8
0.18

6.30
2.52
3.78

6.86
2.74
4.12

7.46
2.98
4.47

8.09
3.24
4.85

8.76
3.50
5.26

(+) Depr

2.1

2.1

2.1

2.1

2.1

(-) NWC

1.44

1.53

1.62

1.72

1.82

FCF

4.44

4.69

4.96

5.24

5.54

CV
Total

NPV = $79.96 mn
Value of Equity = $67.96 mn

104.1220
2
109.66

Case 3 : Cooper without merger

Income statement
OPERATIONS ($ MILLIONS)
Net sales
Cost of goods sold
Depreciation
Selling & admin expenses
Interest expense
INCOME BEFORE TAXES ex.
items
Income taxes
INCOME BEFORE EX.ITEMS
Preferred dividend
NET INCOME APPLICABLE
TO COMMON STOCK
(+) Depreciation
(-) NWC
FCF

1972
220.48
160.95
4
28.66
2.58

1973
233.71
170.61
4
30.38
2.12

1974
247.73
180.84
4
32.21
1.81

1975
262.60
191.69
4
34.14
1.66

1976
278.35
203.20
4
36.19
1.50

24.29
12.14
12.14
0.9

26.60
13.30
13.30
0.9

28.87
14.44
14.44
0.9

31.11
15.55
15.55
0.9

33.47
16.73
16.73
0.9

11.24

12.40

13.54

14.65

15.83

4.74

5.024

5.326

5.645

5.984

10.50

11.38

12.21

13.01

13.85

CV

260.37

Total

274.22

NPV = $198.93 mn
Value of Debt = $19.5 mn
Value of Equity = $179.43 mn
Value per share = $42.62
EPS = $3.22

Case 4 : Cooper with merger

Income statement
OPERATIONS ($ MILLIONS)
Net sales
Cost of goods sold
Depreciation
Selling & admin expenses
Interest expense
INCOME BEFORE TAXES
extraordinary items
Income taxes
INCOME BEFORE EX.ITEMS
Preferred dividend
NET INCOME APPLICABLE
TO COMMON STOCK

1972
279.10
199.05
6.1
39.80
3.38

1973
295.84
211.00
6.1
42.19
2.92

1974
313.59
223.65
6.1
44.72
2.61

1975
332.41
237.07
6.1
47.40
2.46

1976
352.35
251.30
6.1
50.25
2.30

30.77
12.31
18.46
0.9

33.64
13.46
20.19
0.9

36.51
14.60
21.91
0.9

39.38
15.75
23.63
0.9

42.41
16.96
25.44
0.9

17.56

19.29

21.01

22.73

24.54

(+) Depr

6.1

6.1

6.1

6.1

6.1

(-) NWC

6.18

6.27

6.36

6.46

6.56

17.48

19.12

20.75

22.37

24.09

FCF
CV

452.84

Total

476.92

NPV = $344.20 mn
Value of Equity = $324.70 mn

SWAP Ratio Calculations

EPS (Cooper)

3.22

EPS (Nicholson)

2.26

SWAP RATIO

0.70

Total Number of Shares for Cooper

4210000

Total Number of shares of Nicholson

584000

Total Earnings

14857422

ER cooper

0.7034945

ER Nicholson

0.7034945

Value per share After Merger

70.27