Cooper Industries
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Mr. Cizik should make an attempt to gain control of the Nicholson File Company. Cooper Industries has been pursuing a policy of expansion through the acquisition of other companies and this strategy appears to be working well for them. They have acquired a number of companies and have been successful in integrating them into Cooper Industries. They have established three criteria that potential companies for acquisition must meet and Nicholson meets all three criteria. Nicholson holds 50% of the market share in files and rasps, its main products, therefore implying that Cooper could be a “major factor” in this industry. Nicholson is also a leading company in their markets and it is a stable company in terms of not being dependent on a few major customers. Nicholson has a great deal of potential for greater sales growth as it is only growing sales at 2% compared with the industry average of 7%. Due to the strengths of its products and distribution system they should be capable of raising growth rates to the industry average. The company is further desirable to Cooper as the two companies sales forces could be combined leading to cost savings. Nicholsons European distribution system could also be very helpful in expanding Coopers 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.
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 tradable being on the New York Exchange.
The speculators and unaccounted for shareholders will also be concerned primarily with price. Though they would appreciate more liquid payments, they would most likely not be as concerned with this as Porter as many of them will not be specifically looking to get rid of their stock right away. These shareholders