Cost of Debt 0.07 0.04 WD 0.28 Cost of Equity 0.10 We 0.72 Wacc 8.81% Estimated WACC For Nicholson
Cost of Debt 0.07 0.04 WD 0.28 Cost of Equity 0.10 We 0.72 Wacc 8.81% Estimated WACC For Nicholson
Cost of Debt 0.07 0.04 WD 0.28 Cost of Equity 0.10 We 0.72 Wacc 8.81% Estimated WACC For Nicholson
Introduction:
Cooper industries
1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of
Nicholson File Co 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?
According to DCF valuation the price per share for Nicholson comes out to be
$50.07, while multiple valuations gives us average price of $68.03. Generally
multiples give higher values because the companies tend to pay premium on
synergies and goodwill to the target.
FCF's of Nicholson i
Net Sales
Estimated WACC fo
COGS
Cost of Debt
SG&A
Page 1 of 6
PV of CF's
Terminal Value
Exchange ratio
offer price
Multiple Valuation
PV of TV of Coope
Summary
Cooper
PV+TV St price
ratio
Debt
Cash
Shares that cooper
Lufkin Rule Compa
Nicholson has potential of increasing its sales by 6% each year and if Cooper
acquires it thank the projected stock price for 72-76 are $26.43, $54.17, $70.70,
$76.74 & $79.95. Within next 5 years Nicholson MV can increase by 145% from
$29.24M to $71.2M. Cooper can issue 895,467 new shares for the purchase of
Nicholson without diluting its EPS. The acquisition will increase the Cooper EPS
from $2.52 in 1972 to $3.92 in 1976.
Projected Nicholson
Net Sales
EPS post merger
COGS
NI applicable to CS
SG&A
The merger will also help Cooper gain significant share in Industrial markets.
Currently, Nicholson Stock is trading at $44 and the tender offers made by other
NI Nicholson
bidder i.e Porter were $42. The BV of the stock is $51.25.
With our per share price range $35.67 -$68.03. We believe Cooper can afford to
pay Nicholson maximum price of $ 51.25 = BV and still keep the acquisition
attractive because of the synergies and potential increase in Nicholson value
IE
after acquisition.
Depriciation
shares
Other deductions
Estimated Distribu
Shares Supporting
H.K. Porter
Nicholson has several different groups of shareholders. Each group has its own
unique perspective on Nicholson’s eventual merger and partner. Each also
desired an outcome that would prove favorable to their investment decisions.
There is the Porter Company with 177,000 Nicholson (NICK) shares. They do not
want to exchange these shares for VLN preferred shares. Porter fears that VLN
lackluster performance will continue into the future and the stock will not have
Cooper Industries
much growth, making it difficult for them to recoup the cost of the NICK shares
they currently own. Due to these fears of Porter’s management, they will sell at
approx $50 / share to Cooper. The shares that Porter possess is also a bargaining
point for them; their share total represents 30% of NICK outstanding standing
shares and 60% of the total number of shares the Cooper (COOP) needs to gain
a majority ownership in the Nicholson company. Coop with its 29,000 shares
should negotiate with Porter on an agreeable exchange rate for them to get
Porter’s shares when they make an open offer for NICK. The Nicholson family
had 117,000 they won't sell unless assured of management independence. VLN
has assured them of management independence, unless COOP could make
similar overtures they would prefer to merge with VLN and would more than
likely encouraged their shareholders to do the same – these were uncommitted
shareholders with 172,000 shares. Speculators who had 75,000 shares were only
Shares Supporting
concerned about short term gains and will support who ever had the highest
price point. When deciding on a share price from valuation COOP needs to keep
these share holders in mind also.
VLN has 14,000 shares and they want control of Nicholson, their offer is dubious
in terms of the value of the preferred stock in the future. They probably will not
be willing to negotiate with COOP.
Owned by VLN
reporting to the CEO of COOP. COOP need to convince speculators and
unaccounted shareholders that the price being offered is the best price that they
would be able to get. They also need to convince them that they can obtain and
maintain better synergies and operational efficiencies that will lead to higher
profits, earnings dividends and better investment for all.
There could be integration issues for Cooper with Nicholson. They are trying to
generate higher profits, cash flows and ROE on the assumption that they can
make changes in Nicholson's operations and bring about effective synergies and
some cost savings. Also, if cooper takes control of NICK without the consent of
the Nicholson management and shareholders, this could lead to friction between
the two operations post-merger.
NI applicable to CS
Projected Cooper N
C SH's
after acquisition
5. What should Mr. Cizik recommend that the Cooper management do?
Projected Cooper E
Condensed Operating & stockholder Info, Cooper Ind. (millions of dollars except per-share
data)
Operations
Net sales
COGS
Dep
SG&A
IE
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