Mergers & Acquisitions

May 2019

• Baba
• Raj
• Dhananjay
• Chintan
• Divij
• Mihir
• Sachin
Corporate
Life cycle
Mergers & Acquisitions

Acquisition: In a simple acquisition, the

acquiring company obtains the majority stake
in the acquired firm, which does not change
its name or legal structure.

In a merger, the boards of directors for two companies

approve the combination and seek shareholders' approval.
After the merger, the acquired company ceases to exist and
becomes part of the acquiring company.
Main valuations method
Synergy

Synergy can be defined as the value that is created

by combining companies, which yields a result
greater than the value of these companies as
separate entities.

Improve profit margin by working together instead of

as competitors

Control Price
Control Cost
Growth
Greater Sales Expansion
Improved Distribution System
 Cooper Industries
Case Study on Merger & Acquisition
 About Cooper Industries
• • Cooper Industries- founded in 1833 by brothers Charles and Elias Cooper

• • The company started as a foundry and was initially called the C&E Cooper Company.

• • Cooper’s initial product offerings included plows, hog, troughs, kettles and stoves

• • In Mid 1950’s, Cooper Industries became the national leader in pipeline compression engines,
products that enabled the development of the growing oil and gas industry

• • Since it wanted to reduce its exposure to more cyclical industries such as automotive and
petroleum, Cooper underwent a period of portfolio rationalization starting in1959.

• • This was mainly accomplished with it relying heavily on Mergers & Acquisition
 Facts about the Nicholson File Company:
• The Nicholson family and other members of the management group own
about 20% of the Nicholson stock; the remainder is publicly held.

• Vulnerability to be acquired

• Annual Sales Growth of 2% below industry growth rate of 6% poor

bottom lines compare to other hand tool manufacturer

• Poor Market Sentiments on stock reflected in its poor P/E Ratio.

• Valuation of Stock more on the basis of dividend yield rather than hope
for capital appreciation

• Net Worth of the company is presumed on the basis of Book Value (1971)
which is 51.25$ Per Share
 Synergy Between Cooper & Nicholson
• Cost Of Good Sold reduction from 69% to 65% of sales – Leading to additional Income of 2.20
Million $

• Selling, General & Administrative Expenses reduction from 22% To 19% -Leading to additional
Income of 1.68 Million $ The above two savings would results in increase in income before tax
by almost 291% On 1971 Level

• Increase in market reach in industrial market segment by 300% for Cooper Product Range

• Increase in market reach in consumer market segment by 300% for Nicholson Product Range

The above two points creates potentiality for substantial increase in sales for both the
companies.

• Presuming modest growth rate @ 20% due to Synergy could result in increase In revenue of
55.66 Million $ over 1971 levels leading to additional Income of around 5.5 Million $ as a group
 Exhibit 4 - Cooper Industries Condensed Operating and Shareholder Information - in millions of Dollars
1971 1972 1973 1974 1975 1976
Cyclical Down-
Operations turn
Net sales 208.00 240.00 254.40 269.66 285.84 302.99
Cost of goods sold 161.00 184.42 195.48 207.29 219.73 232.69
Depreciation 4.00 4.00 4.00 4.00 4.00 4.00
Selling and administrative expenses 29.00 30.74 32.58 34.54 36.61 38.81
Interest expense 1.00 1.00 1.00 1.00 1.00 1.00
Income before taxes 13.00 19.84 21.34 22.83 24.50 26.50
Income taxes 5.40 7.94 8.54 9.13 9.80 10.60
Income before extraordinary items 7.60 11.90 12.80 13.70 14.70 15.90
Preferred dividend 0.90 0.90 0.90 0.90 0.90 0.90

Net income applicable to common stock 6.70 11.00 11.90 12.80 13.80 15.00
Cost of goods sold 77.4% 76.8% 76.8% 76.9% 76.9% 76.8%
Selling and administrative expenses 13.9% 12.8% 12.8% 12.8% 12.8% 12.8%
Income before taxes 6.3% 8.3% 8.4% 8.5% 8.6% 8.7%
Interest Expense 0.5% 0.4% 0.4% 0.4% 0.3% 0.3%
Income tax Rate 41.5% 40.0% 40.0% 40.0% 40.0% 40.0%
Number of shares outstanding 42,18,691 42,18,691 42,18,691 42,18,691 42,18,691 42,18,691
Earnings per share before extraordinary
items 1.59 2.61 2.82 3.03 3.27 3.56
Dividend per share 1.40 1.40 1.40 1.40 1.40 1.40
Book value per share 18.72 19.93 21.35 22.98 24.85 27.01
Market price 18 to 38 23 to 47 25 to 51 27 to 55 29 to 59 32 to 64
Price-earnings ratio 16 to 34 9 to 18 9 to 18 9 to 18 9 to 18 9 to 18
Book value of the firm 7,89,73,896 8,40,67,728 9,00,61,561 9,69,55,393 10,48,49,226 11,39,43,059
Share price expected - Min 16 23 25 27 29 32
Share price expected - Max 34 47 51 55 59 64
 Exhibit 1 - Nicholson File - Condensed Operating and Shareholder Information - in millions of Dollars

1971 1972 1973 1974 1975 1976

Net sales 55.30 56.41 57.53 58.68 59.86 61.06
Cost of goods sold 37.90 38.92 39.70 40.49 41.30 42.13
Depreciation 2.10 2.14 2.18 2.23 2.27 2.32
Selling and administrative expenses 12.30 12.41 12.66 12.91 13.17 13.43
Interest expense 0.80 0.80 0.80 0.80 0.80 0.80
Other deductions 0.20 0.20 0.20 0.20 0.20 0.20
Income before taxes 2.00 1.93 1.99 2.05 2.11 2.18
Income taxes 0.67 0.77 0.80 0.82 0.85 0.87
Income before extraordinary items 1.33 1.16 1.20 1.23 1.27 1.31
Preferred dividend 0.00 0.00 0.00 0.00 0.00 0.00
Net income applicable to common stock 1.33 1.16 1.20 1.23 1.27 1.31
Percentage of Sales
Cost of goods sold 68.5% 69.0% 69.0% 69.0% 69.0% 69.0%
Selling and administrative expenses 22.2% 22.0% 22.0% 22.0% 22.0% 22.0%
Income before taxes 3.6% 3.4% 3.5% 3.5% 3.5% 3.6%
Interest Expense 2.1% 2.1% 2.0% 2.0% 1.9% 1.9%
Income tax Rate 33.50% 40.00% 40.00% 40.00% 40.00% 40.00%
Common stock
Number of shares outstanding 5,84,000 5,84,000 5,84,000 5,84,000 5,84,000 5,84,000
Earnings per share before extraordinary items 2.28 1.99 2.05 2.11 2.17 2.24
Dividend per share 1.60 1.60 1.60 1.60 1.60 1.60
Book value per share 51.25 51.64 52.09 52.59 53.17 53.80
Market price 22 to 32 19 to 27 20 to 29 21 to 30 22 to 30 22 to 31
Price-earnings ratio 10 to 14 10 to 14 10 to 14 10 to 14 10 to 14 10 to 14
Book value of the firm 2,99,30,000 3,01,56,324 3,04,17,862 3,07,15,320 3,10,49,414 3,14,20,878
Share price expected - Min 19.88 20.48 21.09 21.72 22.36
Share price expected - Max 27.83 28.67 29.53 30.41 31.30
Minimum Merger Valuation for Cooper at $50 per Cooper already owns
share 2,77,50,000 29000
 Exhibit 2 - Nicholson File operating after merger with Cooper Industries - Condensed Operating and Shareholder
Information - in millions of Dollars
1971 1972 1973 1974 1975 1976
Operations
Net sales 55.30 58.62 62.14 65.86 69.81 74.00
Cost of goods sold 37.90 38.10 40.39 42.81 45.38 48.10
Depreciation 2.10 2.23 2.36 2.50 2.65 2.81

Selling and administrative expenses 12.30 11.14 11.81 12.51 13.26 14.06
Interest expense 0.80 0.80 0.80 0.80 0.80 0.80
Other deductions 0.20 0.20 0.20 0.20 0.20 0.20
Income before taxes 2.00 6.15 6.58 7.04 7.52 8.03
Income taxes 0.67 3.08 3.29 3.52 3.76 4.02

Income before extraordinary items 1.33 3.08 3.29 3.52 3.76 4.02
Preferred dividend 0.00 0.00 0.00 0.00 0.00 0.00

Net income applicable to common stock 1.33 3.08 3.29 3.52 3.76 4.02
Cost of goods sold 68.5% 65.0% 65.0% 65.0% 65.0% 65.0%

Selling and administrative expenses 22.2% 19.0% 19.0% 19.0% 19.0% 19.0%
Income before taxes 3.6% 10.5% 10.6% 10.7% 10.8% 10.9%
Interest Expense 2.1% 2.1% 2.0% 1.9% 1.8% 1.7%
Income tax Rate 33.50% 50.00% 50.00% 50.00% 50.00% 50.00%
Common stock
Number of shares outstanding 5,84,000 5,84,000 5,84,000 5,84,000 5,84,000 5,84,000

Earnings per share before extraordinary items 2.28 5.27 5.64 6.02 6.44 6.88
Dividend per share 1.60 1.60 1.60 1.60 1.60 1.60
Book value per share 51.25 54.92 58.95 63.38 68.22 73.49
Market price 22 to 32 73 to 89 79 to 96 84 to 102 90 to 109 96 to 117
Price-earnings ratio 10 to 14 14 to 17 14 to 17 14 to 17 14 to 17 14 to 17
Book value of the firm 2,99,30,000 3,20,72,040 3,44,28,666 3,70,12,754 3,98,37,952 4,29,18,725
Share price expected - Min 73.75 78.89 84.35 90.13 96.25
Share price expected - Max 89.55 95.80 102.42 109.44 116.88
 Shares Distribution Of Nicholson
Magic Figure For Acquisition (584000*51.1%) 2,92,584
HK Porter 1,77,000
Shares In Hand - Cooper 29,000
Balance Shares To Be Acquired 86,584

Potential Support Priority

Shares Unaccounted For (Average) 172000
Shares Held By Speculator (Average) 75000
Nicholson Family & Management 117000
Own By VLN 14000

TOTAL 584000
 Thank You,
My Shareholders.!