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    02 Eaton Questions PDF

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    Sulaiman Amin
    - Eaton Corporation is a diversified industrial conglomerate that has been restructuring its portfolio of businesses over the past 15 years to focus on "intelligent power". - As part of this strategy, Eaton received an offer of $3.3 billion from Danfoss to buy its hydraulics business. - Eaton CEO Craig Arnold must decide if selling the hydraulics business makes strategic sense and if $3.3 billion is a fair price.

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    02 Eaton Questions PDF

    Uploaded by

    Sulaiman Amin
    234 views1 page
    - Eaton Corporation is a diversified industrial conglomerate that has been restructuring its portfolio of businesses over the past 15 years to focus on "intelligent power". - As part of this strategy, Eaton received an offer of $3.3 billion from Danfoss to buy its hydraulics business. - Eaton CEO Craig Arnold must decide if selling the hydraulics business makes strategic sense and if $3.3 billion is a fair price.

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    - Eaton Corporation is a diversified industrial conglomerate that has been restructuring its portfolio of businesses over the past 15 years to focus on "intelligent power". - As part of this strategy, Eaton received an offer of $3.3 billion from Danfoss to buy its hydraulics business. - Eaton CEO Craig Arnold must decide if selling the hydraulics business makes strategic sense and if $3.3 billion is a fair price.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    234 views1 page

    02 Eaton Questions PDF

    Uploaded by

    Sulaiman Amin
    - Eaton Corporation is a diversified industrial conglomerate that has been restructuring its portfolio of businesses over the past 15 years to focus on "intelligent power". - As part of this strategy, Eaton received an offer of $3.3 billion from Danfoss to buy its hydraulics business. - Eaton CEO Craig Arnold must decide if selling the hydraulics business makes strategic sense and if $3.3 billion is a fair price.

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    Valuation

    Prof. Philip Valta

    EATON CORPORATION: PORTFOLIO TRANSFORMATION AND


    THE COST OF CAPITAL
    Due date: Wednesday, March 23, 2023, at 10pm
    Eaton Corporation was a diversified industrial conglomerate that had been changing its
    strategic focus and restructuring its portfolio of businesses for the past 15 years. Through more
    than 70 acquisitions and 50 divestitures, Eaton had narrowed its strategic focus considerably and
    was now pursuing a strategy based on “intelligent power”. As part of that effort, Eaton got an offer
    from Danfoss, a diversified Danish multinational, to buy its hydraulics business for $3.3 billion in
    January 2020. Eaton CEO Craig Arnold must decide if it makes sense strategically to sell this
    business and if $3.3 billion is a fair price for it.

    1. Why is Arnold considering the sale of Eaton’s Hydraulics business? Does it make sense
    strategically to sell the business?

    2. What is the appropriate discount rate for the cash flows shown in Exhibit 5 (the forecasts for
    the Hydraulics business excluding the filtration and golf grips business which are not part of
    the deal)? Please be clear about your assumptions regarding the cost of debt, cost of equity,
    and the weighted average cost of capital.

    Hint: i) Assume that the target leverage ratio for the standalone hydraulics business is
    20% (net debt-to-value ratio). ii) Assume that the debt beta is 0.1 and the market risk
    premium 5%.

    3. What would be the discount rate to value Eaton Corporation as a whole for either acquisition
    purposes or share repurchase decisions?

    4. Using the insights from your analysis on the discount rate, how much is the Hydraulics
    business worth to Eaton? Does it make sense financially to sell the business at this price?
    What should Craig Arnold do?

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