Advanced Financial Management
Cooper Industries Case
March 30, 2009
Jesse Van Gestel
ID#200504399
Cooper Industries, Inc.
1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Company 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? [Treasury Bills yielded 5.6% in May 1972.]
3. What are the concerns and what is the bargaining position of each group of Nicholson stockholders? What must Cooper offer group in order to acquire its shares?
4. On the assumption that the Cooper management wants to acquire at least 80% of the outstanding Nicholson stock and make the same
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Nicholson’s European distribution system could also be very helpful in expanding Cooper’s sales in Europe. As Cooper Industries sells more of their product to industry and Nicholson to the consumer market by combining the companies they may be able to increase sales of both product lines to the market segment they are weaker in.
2. FMV of Nicholson = $172,630,000
Per share value = $295.60
I was not able to come up with a valid firm value, as there was no information regarding how much working capital will be increased by Nicholson over the next ten years, nor was there any information available regarding how much capital expenditures would be increased. Capital expenditures were assumed to equal depreciation and it was assumed working capital was not growing.
3.
H.K. Porter bought their shares with the intention of taking over Nicholson themselves, however as they were unable to acquire enough shares to buy the company they are now looking to sell their shares. They would obviously like to do this profitably if possible and their primary concerns are therefore the price and liquidity. They are looking to get the most money out the stocks that they can and so price is of primary importance in bargaining with them. However, they also want to be able to quickly liquidate their stocks and so would prefer to receive cash. Though they have expressed that convertible preferred stock would be acceptable as they know Cooper stock is stable and is easily
A) What is the possible meaning of the changes in stock price for GEICO and Berkshire Hathaway on the day of the acquisition announcement?
First, the projected cash flows range from $21.2 million in 2007 to $29.5 million in 2011 as shown in the data exhibit ‘DCF model.’ To generate these numbers Liedtke’s base case performance projections are used for the projected 2007 – 2011 net revenue numbers and the estimated depreciation and then his projections for Balance sheet accounts were used to determine the current net working capital and capital expenditure as in the exhibit ‘Financial statements.’ These projections were based by Liedtke under the following assumptions, women’s casual footwear would be wound down within one year and the historical corporate overhead-revenue ratio would conform to historical averages. These annual cash flows give us a PV (Cash flows) of $96.15 million over the next 5 years.
A) What is the possible meaning of the changes in stock price for GEICO and Berkshire Hathaway on the day of the acquisition announcement?
6. If the company decides to go ahead with the targeted stock issue, what specific provisions or features should the stock include to ensure maximum value creation? How closely would you model USX’s targeted stock on GM’s alphabet stock?
David Jacob should analyze the situation with different interests in mind. Since he was looking for an exit from this business that he built from perseverance and hard work, it would be to his benefit to obtain the maximum amount of money possible from the sale. This makes the strategic buyers more favorable. However, His sons who currently work for the company would probably lose their jobs. Finally, taking in consideration of his age of 70, which is an age where he would probably want to just enjoy his life as much as possible, we would say that he should choose to sell to the strategic buyer and take the higher premium and just leave the business completely.
2. Evaluate the two offers in Exhibit 7. What explains the two structures? In each case, what is the value to MCI shareholders?
Pennsylvania’s Business Corporation Law makes it difficult to perform a first tier tender offer this is why CSX choose to split the offer into two stages. The first stage cash offer of $92.50 per share enables CSX to gain control of Conrail’s stock as shareholders should be willing to trade their ownership for such a significant payout. The remaining shareholders who decide not to give up their shares will only be paid $86.78, calculated from taking the initial stock price of
A prospective buyer has to consider the motives and financial positions of other bidders. Kohlberg wants to buyout the company in order to turn it into a private firm. ARCO has a pretty strict limit in what it can offer because of its highly leveraged position. Even if a company has the ability to take out a larger loan to make a greater offer, it has to consider the consequences of doing so. While a company like Socal has unrestricted credit, its decisions as to how to operate the company after the buyout are very limited. Creating a lot of debt in order to finance the purchase is a large risk. If the company does not perform well in the future it could face tremendous loss. In this case, a bid of $80 per share would be appropriate for an un-leveraged company like Socal. This would be enough to win Gulf while still leaving breathing room for shareholders. Taxes do not need to be considered, because the benefits cancel out the
Q3. Do you agree with Mr. Clarkson’s estimation of the company loan requirements? How much will he need to finance the expected expansion in sales to $ 5.5 Mil. In 1996 and to take all trade discounts?
How much should he bid? (It's an option as well to withdrow from the market)
2. Is the price of $319 million reasonable for the Monticello Mill and Box Plants based on a cash-flow analysis? Assume cash flows consistent with Table A, Table B and Exhibit 3, a discount rate of 13%, and a terminal value equal to the book value of assets in1993.
Grommet Industries is facing some very tough business decisions to stabilize the company and restructure to stimulate growth. The HR issues that I am now asked to address in our meeting with Mr. Ramon include identifying the issues we are facing, the options we have to work with, and strategies to use for implementation.
1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Co in May 1972?
DO YOU AGREE WITH MR. WILSON 'S ESTIMATE OF THE COMPANY 'S LOAN REQUIREMENTS? HOW MUCH WILL HE NEED TO FINANCE THE EXPECTED EXPANSION IN SALES TO $ 5.5 MILLION IN 2006 AND TO TAKE ALL TRADE DISCOUNTS?
Before the offer, the board must not take any action, except pursuant to already existing contracts, without shareholders’ approval in a general meeting, regarding the offeree company which can lead any bona fide offer to frustrate or deny an opportunity to the shareholders to decide on the merits of the offer. The facts state that an investment agreement with Side Petroleum was entered by Glenco in 2014 after consulting with the board members, with the concern that Amex may re-launch another bid. This was clearly an action taken by the board leading to the frustration of Amex’s bona-fide offer, especially when it is done without shareholder