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. 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. What should be the price and form of Offer for Cooper to be able to acquire Nicholson? Cooper is looking to assemble a strong presence in the non-powered hand tool industry to reduce this fluctuation in its earnings. Cooper sees Nicholson File as a good fit to its product line offerings and believes that it can leverage the international distribution of Nicholson to cross-sell the combined product offerings. Its previous mergers in the last three years have been successful and it has been able to keep the management of the merged entities on-board. Cooper believes it will be able to bring operating efficiencies to Nicholson and grow its sales by 6% from the current 2%. SGA will come down to 19% of sales and COGS would reduce to 65% of sales. Mr. Cizik should go ahead and acquire Nicholson File at $74 a share.