Escolar Documentos
Profissional Documentos
Cultura Documentos
Pre-merger Post-merger
1971 1972 1972
Cash 9 9.54 10.56
Accounts Recievable 49 51.94 60.1
Inventories 57 60.42 78.78
Other 2 2 3
Current Assets 117 123.9 152.44
Net Plant & Equipment 47 47 63
Other 8 8 11
Total assets 172 178.9 226.44
Cooper buys 100% of the Nicholson File in a tax-free stock for stock exchange
Same level of Debt as before
Two Cooper shares for one Nicholson share at $23
0.484036 584000
Exhibit 3 - Nicholson File Balance Sheet - in millions of Dollars
Before merger
1971 1972
Cash 1.00 1.02
Accounts Recievable 8.00 8.16
Inventories 18.00 18.36
Other 1.00 1
Current Assets 28.00 28.54
Net Plant & Equipment 16.00 16
Investment in subsidiaries 3.00 3
Total assets 47.00 47.54
Sales growth equal to 2 %, which is the current growth rate, as given in the case
Same level of Debt as before
Exhibit 5 - Cooper Industries Mergered with Nicholson File Condensed Operating and Shareholder
Information - in millions of Dollars
1967 1968 1969 1970 1971 1972 1973 1974 1975
Cyclical
Operations Down-turn
Net sales 198.00 206.00 212.00 226.00 206.00 298.62 316.54 335.53 355.66
Cost of goods sold 141.00 145.00 154.00 164.00 161.00 218.56 231.60 245.54 260.21
Depreciation 4.00 5.00 4.00 4.00 4.00 6.23 6.36 6.50 6.65
Selling and administrative
expenses 23.00 25.00 29.00 29.00 29.00 41.88 44.39 47.05 49.88
Interest expense 1.00 2.00 3.00 4.00 1.00 1.80 1.80 1.80 1.80
Income before taxes 29.00 29.00 22.00 25.00 11.00 30.15 32.38 34.64 37.12
Income taxes 13.80 15.10 11.40 12.60 5.40 15.08 16.19 17.32 18.56
Income before
extraordinary items 15.20 13.90 10.60 12.40 5.60 15.08 16.19 17.32 18.56
Preferred dividend 1.00 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90
Net income applicable
to common stock 14.20 13.00 9.70 11.50 4.70 14.18 15.29 16.42 17.66
Percentage of Sales
Cost of goods sold 71.2% 70.4% 72.6% 72.6% 78.2% 73.2% 73.2% 73.2% 73.2%
Selling and administrative
expenses 11.6% 12.1% 13.7% 12.8% 14.1% 14.0% 14.0% 14.0% 14.0%
Income before taxes 14.6% 14.1% 10.4% 11.1% 5.3% 10.1% 10.2% 10.3% 10.4%
Interest Expense 0.5% 1.0% 1.4% 1.8% 0.5% 0.6% 0.6% 0.5% 0.5%
Income tax Rate 47.6% 52.1% 51.8% 50.4% 49.1% 50.0% 50.0% 50.0% 50.0%
Common stock
Number of shares
outstanding 4,218,691 4,218,691 4,218,691 4,218,691 4,218,691 5,425,214 5,425,214 5,425,214 5,425,214
Tax rate from 1972 onwards as 50% based on the historical average of last 5 years (1967 to 1971)
In 1972, after the merger, the number of outstanding shares has increased to 5,425,214 shares
(About 2.08 Cooper shares issued for 1 Nicholson Share)
1976
377.00
275.49
6.81
52.87
1.80
40.03
20.02
20.02
0.90
19.12
73.1%
14.0%
10.6%
0.5%
50.0%
5,425,214
3.52
1.40
26.96
49 to 60
14 to 17
146,244,230
49
60
Exhibit 4 - Cooper Industries Condensed Operating and Shareholder Information - in millions of Dollars
1967 1968 1969 1970 1971 1972 1973 1974 1975 1976
Cyclical
Operations Down-turn
Net sales 198.00 206.00 212.00 226.00 206.00 240.00 254.40 269.66 285.84 302.99
Cost of goods sold 141.00 145.00 154.00 164.00 161.00 180.46 191.22 202.72 214.83 227.39
Depreciation 4.00 5.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00
Selling and administrative
expenses 23.00 25.00 29.00 29.00 29.00 30.74 32.58 34.54 36.61 38.81
Interest expense 1.00 2.00 3.00 4.00 1.00 1.00 1.00 1.00 1.00 1.00
Income before taxes 29.00 29.00 22.00 25.00 11.00 23.80 25.60 27.40 29.40 31.80
Income taxes 13.80 15.10 11.40 12.60 5.40 11.90 12.80 13.70 14.70 15.90
Income before
extraordinary items 15.20 13.90 10.60 12.40 5.60 11.90 12.80 13.70 14.70 15.90
Preferred dividend 1.00 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90
Net income applicable to
common stock 14.20 13.00 9.70 11.50 4.70 11.00 11.90 12.80 13.80 15.00
Percentage of Sales
Cost of goods sold 71.2% 70.4% 72.6% 72.6% 78.2% 75.2% 75.2% 75.2% 75.2% 75.0%
Selling and administrative
expenses 11.6% 12.1% 13.7% 12.8% 14.1% 12.8% 12.8% 12.8% 12.8% 12.8%
Income before taxes 14.6% 14.1% 10.4% 11.1% 5.3% 9.9% 10.1% 10.2% 10.3% 10.5%
Interest Expense 0.5% 1.0% 1.4% 1.8% 0.5% 0.4% 0.4% 0.4% 0.3% 0.3%
Income tax Rate 47.6% 52.1% 51.8% 50.4% 49.1% 50.0% 50.0% 50.0% 50.0% 50.0%
Common stock
Number of shares
outstanding 4,218,691 4,218,691 4,218,691 4,218,691 4,218,691 4,218,691 4,218,691 4,218,691 4,218,691 4,218,691
Earnings per share before
extraordinary items 3.37 3.08 2.30 2.73 1.11 2.61 2.82 3.03 3.27 3.56
Dividend per share 1.20 1.25 1.40 1.40 1.40 1.40 1.40 1.40 1.40 1.40
Book value per share 16.43 17.26 18.28 19.68 18.72 19.93 21.35 22.98 24.85 27.01
Market price 23 to 59 36 to 57 22 to 50 22 to 35 18 to 38 23 to 47 25 to 51 27 to 55 29 to 59 32 to 64
Price-earnings ratio 7 to 18 12 to 19 9 to 22 8 to 13 16 to 34 9 to 18 9 to 18 9 to 18 9 to 18 9 to 18
Book value of the firm 69,313,093 72,814,607 77,117,671 83,023,839 78,973,896 84,067,728 90,061,561 96,955,393 104,849,226 113,943,059
Share price expected - Min 7 12 9 8 16 23 25 27 29 32
Share price expected - Max 18 19 22 13 34 47 51 55 59 64
Net Income fro 1972 to 1976 as given in Exhibit 8, based on case-writer's assumptions
Tax rate from 1972 onwards as 50% based on the historical average of last 5 years (1967 to 1971)
Historical Price Earnings ratio of 9 to 18, ignoring 1971 which was considered a cyclical sales year as per case
Exhibit 1 - Nicholson File - Condensed Operating and Shareholder Information - in millions of Dollars
1967 1968 1969 1970 1971 1972 1973 1974 1975
Operations
Net sales 48.50 49.10 53.70 54.80 55.30 56.41 57.53 58.68 59.86
Cost of goods sold 32.60 33.10 35.90 37.20 37.90 38.92 39.70 40.49 41.30
Depreciation 2.00 2.30 2.40 2.30 2.10 2.14 2.18 2.23 2.27
Selling and administrative
expenses 10.70 11.10 11.50 11.90 12.30 12.41 12.66 12.91 13.17
Interest expense 0.40 0.70 0.80 0.80 0.80 0.80 0.80 0.80 0.80
Other deductions 0.30 0.10 0.20 0.20 0.20 0.20 0.20 0.20 0.20
Income before taxes 2.50 1.80 2.90 2.40 2.00 1.93 1.99 2.05 2.11
Income taxes 0.60 0.84 1.31 0.88 0.67 0.77 0.80 0.82 0.85
Income before extraordinary
items 1.90 0.96 1.59 1.52 1.33 1.16 1.20 1.23 1.27
Preferred dividend 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Net income applicable to
common stock 1.90 0.96 1.59 1.52 1.33 1.16 1.20 1.23 1.27
Percentage of Sales
Cost of goods sold 67.2% 67.4% 66.9% 67.9% 68.5% 69.0% 69.0% 69.0% 69.0%
Selling and administrative
expenses 22.1% 22.6% 21.4% 21.7% 22.2% 22.0% 22.0% 22.0% 22.0%
Income before taxes 5.2% 3.7% 5.4% 4.4% 3.6% 3.4% 3.5% 3.5% 3.5%
Interest Expense 1.2% 2.1% 2.2% 2.2% 2.1% 2.1% 2.0% 2.0% 1.9%
Income tax Rate 24.00% 46.67% 45.17% 36.67% 33.50% 40.00% 40.00% 40.00% 40.00%
Common stock
Number of shares outstanding 584,000 584,000 584,000 584,000 584,000 584,000 584,000 584,000 584,000
Earnings per share before
extraordinary items 3.25 1.64 2.72 2.60 2.28 1.99 2.05 2.11 2.17
Dividend per share 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60 1.60
Book value per share 45.66 48.03 49.31 50.20 51.25 51.64 52.09 52.59 53.17
Market price 33 to 46 35 to 48 29 to 41 25 to 33 22 to 32 19 to 27 20 to 29 21 to 30 22 to 30
Price-earnings ratio 10 to 14 21 to 30 10 to 14 9 to 13 10 to 14 10 to 14 10 to 14 10 to 14 10 to 14
Book value of the firm 26,665,440 28,049,520 28,797,040 29,316,800 29,930,000 30,156,324 30,417,862 30,715,320 31,049,414
Share price expected - Min 19.88 20.48 21.09 21.72
Share price expected - Max 27.83 28.67 29.53 30.41
Minimum Merger Valuation for 27,750,000 Cooper already owns 29000 Nicholson shares
Cooper at $50 per share
Sales growth equal to 2 %, which is the current growth rate, as given in the case
Cost of goods sold as the current rate of 69% of the net sales
61.06
42.13
2.32
13.43
0.80
0.20
2.18
0.87
1.31
0.00
1.31
69.0%
22.0%
3.6%
1.9%
40.00%
584,000
2.24
1.60
53.80
22 to 31
10 to 14
31,420,878
22.36
31.30
9000 Nicholson shares
Exhibit 2 - Nicholson File operating after merger with Cooper Industries - Condensed Operating and
Shareholder Information - in millions of Dollars
1967 1968 1969 1970 1971 1972 1973 1974 1975 1976
Operations
Net sales 48.50 49.10 53.70 54.80 55.30 58.62 62.14 65.86 69.81 74.00
Cost of goods sold 32.60 33.10 35.90 37.20 37.90 38.10 40.39 42.81 45.38 48.10
Depreciation 2.00 2.30 2.40 2.30 2.10 2.23 2.36 2.50 2.65 2.81
Selling and administrative
expenses 10.70 11.10 11.50 11.90 12.30 11.14 11.81 12.51 13.26 14.06
Interest expense 0.40 0.70 0.80 0.80 0.80 0.80 0.80 0.80 0.80 0.80
Other deductions 0.30 0.10 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20
Income before taxes 2.50 1.80 2.90 2.40 2.00 6.15 6.58 7.04 7.52 8.03
Income taxes 0.60 0.84 1.31 0.88 0.67 3.08 3.29 3.52 3.76 4.02
Income before extraordinary
items 1.90 0.96 1.59 1.52 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 0.00 0.00 0.00 0.00
Net income applicable to
common stock 1.90 0.96 1.59 1.52 1.33 3.08 3.29 3.52 3.76 4.02
Percentage of Sales
Cost of goods sold 67.2% 67.4% 66.9% 67.9% 68.5% 65.0% 65.0% 65.0% 65.0% 65.0%
Selling and administrative
expenses 22.1% 22.6% 21.4% 21.7% 22.2% 19.0% 19.0% 19.0% 19.0% 19.0%
Income before taxes 5.2% 3.7% 5.4% 4.4% 3.6% 10.5% 10.6% 10.7% 10.8% 10.9%
Interest Expense 1.2% 2.1% 2.2% 2.2% 2.1% 2.1% 2.0% 1.9% 1.8% 1.7%
Income tax Rate 24.00% 46.67% 45.17% 36.67% 33.50% 50.00% 50.00% 50.00% 50.00% 50.00%
Common stock
Number of shares outstanding 584,000 584,000 584,000 584,000 584,000 584,000 584,000 584,000 584,000 584,000
Earnings per share before
extraordinary items 3.25 1.64 2.72 2.60 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 1.60 1.60 1.60 1.60
Book value per share 45.66 48.03 49.31 50.20 51.25 54.92 58.95 63.38 68.22 73.49
Market price 33 to 46 35 to 48 29 to 41 25 to 33 22 to 32 73 to 89 79 to 96 84 to 102 90 to 109 96 to 117
Price-earnings ratio 10 to 14 21 to 30 10 to 14 9 to 13 10 to 14 14 to 17 14 to 17 14 to 17 14 to 17 14 to 17
Book value of the firm 26,665,440 28,049,520 28,797,040 29,316,800 29,930,000 32,072,040 34,428,666 37,012,754 39,837,952 42,918,725
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
Sales growth equal to 6 %, which is the expected industry growth rate, as given in the case
Cost of goods sold as 65% of the net sales, as expected by Cooper industries
Selling and administrative expenses as 19% of Net Sales, as expected by Cooper Industries because of overlap
Price to earning ratio of 14 to 17, same as the leading companies in the industry
As Cooper offer price is above the last 52-week range of 22 to 32 and valuates the firm at $29.2 million which is near the book value of $30 million,
on the announcement of the Cooper-Nicholson merger, Cooper gets the support of 50% of the speculative shares and
Cooper gets support of the one-third of the un-accounted shares.
This gives Cooper Industries the simple majority of 51.54% above the 50.1% required as per RI merger law, to go ahead with the merger.
It is assumed that Cooper will eventually exchange 100% of the Nicholson shares for the Cooper shares
It will cost Cooper $27.75 million, as it already owns about 5% of the Nicholson Shares
Cooper Earnings per share
4.00
3.50
3.00
2.50
Cooper pre-merger
$
1.50
1.00
0.50
0.00
1 2 3 4 5 6 7 8 9 10
Year
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