Cooper Industry Case Study

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A lower market value comparing to its book value is the result from its inefficient operation and uncompetitive EPS which made Nicholson less attractive to investors and speculators.

Valuation of Nicholson File Company with merger

Please see the Exhibit

Once Nicholson corporates with Cooper, Mr. Cizik believed that he were capable to boost Nicholson’s sale growth rate from 2% to 6% amid possible sources of earnings, to cut its cost from 69% to 65%, shrink the SG&A from 22% to 19% due to the elimination of the advertisement. As a result, the enterprise value was $66.4 million, and the price per share climbed to $93.2. EPS

In the light of the synergy, both Cooper and Nicholson would benefit from a wider market, as 75% of Nicholson’s sales from the industries market could be channeled to consumer market where Cooper had a bigger sales share.

Cooper’s Strategy

It is quite obvious that a merger with Nicholson would bring prolong benefit for Cooper which were highly depended on the consumers market with the character that were too flexible. Based on the projection, the acceptable price for Cooper would range from $45 to $93. But buyout the majority of shares outstanding to gain the control of Nicholson was not an appropriate strategy because there were many concerns that worried the management in Nicholson. They were feared that the new leader would abandon marginal product lines by issuing a massive cost cutting programs. Moreover, VLN’s convertible preferred shares were less valuable due to its $1.6 dividend rate (7%) was only slight higher than the intermediate-term U.S Treasury bonds (6.5%). Investors requiring a higher return would sell VLN’s shares and go for better performers.

A severe fluctuation within the VLN share price from $5 to $8 was another concern for Nicholson because