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GROUP I Gopalkrishnan 214 Saket Jain 217 Shraddha Kakade- 219 Bhavin Parekh - 232 Natasha Patel - 235 Saubhagya Seksaria - 243 R Venkatraman - 256
Cooper Industries- founded in 1833 by brothers Charles and Elias Cooper The company started as a foundry and was initially called the C&E Cooper Company.
Coopers initial product offerings included plows, hog, troughs, kettles and stoves
In Mid 1950s, Cooper Industries became the national leader in pipeline compression engines, products that enabled the development of the growing oil and gas industry Since it wanted to reduce its exposure to more cyclical industries such as automotive and petroleum, Cooper underwent a period of portfolio rationalization starting in1959. This was mainly accomplished with it relying heavily on Mergers & Acquisition
Acquisition
When one company takes over another and clearly establishes itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.
Merger
Merger happens when two firms agree to go forward as a single new company rather than remain separately owned and operated. Both companies' stocks are surrendered and new company stock is issued in its place.
Whether a purchase is considered a merger or an acquisition really depends on whether the purchase is friendly or hostile and how it is announced. In other words, the real difference lies in how the purchase is communicated to and received by the target company's board of directors, employees and shareholders.
Disadvantages It was a loss making company which needed to be turned around by restructuring and stopping production in inefficient plants and products
Economy of scale Economy of scope Increased revenue or market share Market Dominance Cross-selling Taxation: A profitable company can buy a loss maker to use the target's loss as their advantage Geographical or other diversification into new Markets Resource transfer: resources information asymmetry or by combining scarce resources Vertical integration: Vertical integration occurs when an upstream and downstream firm
merges. Reason e.g. Double marginalization. It occurs when both the upstream and downstream firms have monopoly power
Empire-building
Synergy:
Synergy can be defined as the value that is created by combining companies, which yields a result greater than the value of these companies as separate entities.
Improve profit margin by working together instead of as competitors. Control Price Control Cost Growth Greater Sales Expansion Improved Distribution System
The Nicholson family and other members of the management group own about 20% of the Nicholson stock; the remainder is publicly held. Vulnerability to be acquired Annual Sales Growth of 2% below industry growth rate of 6% poor bottom lines compare to other hand tool manufacturer Poor Market Sentiments on stock reflected in its poor P/E Ratio. Valuation of Stock more on the basis of dividend yield rather than hope for capital appreciation Net Worth of the company is presumed on the basis of Book Value (1971) which is 51.25$ Per Share
OPERATING PERFOMANCE
NICHOLSON
(Million of $ Except Per Share Data) 1967 Operations Net Sales Cost of Goods Sold Depreciation Selling & Adm Exp Interest Expenses Other Deductions Income Before Tax Income Taxes Income Before Preferred Div 48.5 32.6 2 10.7 0.4 0.3 2.5 0.6 1.9 49.1 33.1 2.3 11.1 0.7 0.1 1.8 0.84 0.96 53.7 35.5 2.4 11.5 0.8 0.2 3.3 1.31 1.99 54.8 37.2 2.3 11.9 0.8 0.2 2.4 0.88 1.52 55.3 37.9 2.1 12.3 0.8 0.2 2 0.67 1.33 1968 1969 1970 1971
Percentage of Sales
Cost of Goods Sold % Selling & Adm Exp Income Before Tax And Extraordinary Items 67 22 5.2 67 23 3.7 66 21 6.1 68 22 4.4 69 22 3.6
Cost Of Good Sold reduction from 69% to 65% of sales Leading to additional Income of 2.20 Million $ Selling, General & Administrative Expenses reduction from 22% To 19% Leading to additional Income of 1.68 Million $ The above two savings would results in increase in income before tax by almost 291% On 1971 Level Increase in market reach in industrial market segment by 300% for Cooper Product Range Increase in market reach in consumer market segment by 300% for Nicholson Product Range The above two points creates potentiality for substantial increase in sales for both the companies. Presuming modest growth rate @ 20% due to Synergy could result in increase In revenue of 55.66 Million $ over 1971 levels leading to additional Income of around 5.5 Million $ as a group
($ In Millions) Nicholson
Net Sales
Saving Due To Reduction In COGS by 4% Saving Due To Reduction In Selling General & Adm. Exp by 3% Total Saving due to synergy (a)
Cooper
55.3
2.20 1.68 3.87
Nicholson
55.3 11.06 7.19 2.10 1.77
5.54
9.41
Due to the above does not want its holding of 177000 share in Nicholson to be depreciated by converting into VLN preferred stocks or common stock.
Keeping the above in mind it has no option but to turn to Cooper Industries.
Issue Of Equity
Infuse Of Debt / Bond Current Debt / Equity Ration is favor to Raise Debt Total needed and available 13 4
AMI /Audible/Visual Signaling- MEDC /Cable Management /Capacitors (Power)/ Comm./Data /Control Stations /Demand Response /Dielectric Fluids /Electrical Automation Systems /Enclosures-Bline /Enclosures-Crouse-Hinds /Electrical Junction Boxes/ Emergency Communications /Energy Automation /Field bus /Fire Life Safety/ Fittings / Cable Glands /Fuses (or Fusing Protection) Busman /Fuses - Power Systems /Grating Products /Hand Tools /Industrial Ethernet /Industrial Security /Industrial Wireless /Instrument Junction Boxes /Instrumentation Protection /LightingControls /Lighting-Area Site /Lighting-Commercial Office /Lighting-Complex Environment /LightingHazardous Lighting /Lighting-Warehouse /Line, Installation and protection equip /Manual Call Stations /Meter Mountings /MRP (Molded Rubber Products) /PA/GA - MEDC /Panel Boards /Pipe Hangers & Mechanical Supports /Plugs and Receptacles /Power Tools /Pre-fab Systems /Process Alarm Equipment /Power System Analysis Software /Regulators /Spring Steel Fasteners /Strut Systems / Bolted Framing /Surge Protection /Surge Protection - Power Systems /Switches /Switchgear /Transformer Pad mount /Transformer Pole Mount /Transformer Substation /Wiring Devices
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