Cooper Industries’ Corporate Strategy
Cooper industries’ is a broad company that strongly uses M&A strategy of diversification. But diversification for Cooper doesn’t mean just ‘adding, adding and more adding’. Division managers seek for ‘complementary acquisition’ defined as logical extensions of Cooper’s existing products or markets; furthermore they keep examining what they have, not being afraid to get rid of companies that have served their useful time; this process was defined as ‘cooperization’. Then, after each acquisition the interneal structure was modified, if necessary.
But why diversify? Everything started from the cyclical downturn suffered from Cooper in 1958, this experience had a deep impact on the company, that at the time was still a small engines maker. They felt there was the need to diversify and not to limit their-self; several guidelines drive Coper’s acquisitions: they pursue only companies that exhibit stable earnings or with earnings countercycljcal to the oil and gas transmission industry; have proven manufacturing operations; use well- known technologies, serve a broad customer base and are market leaders.
In addition they decided to concentrate on the hand tools market, that with its few fluctuation will help leveling Cooper’s cyclical revenues even more. Part of the company’s strategy is the fact that Cooper targeted 40% as a desirable debt- total capital ratio ,and preferred to finance expansion with cash or convertible preferred stock ‘cash flow is king’ was the motto. Strong cash flow will help Cooper to aggressively pursue its acquisition program.
Cooper industries’ in my opinion is a very good company, creating value with a strong corporate policy and organization, difficult to find in other entities. Cooper exercise central control over corporate policy but delegate day to day operating decisions to the operating units; and gives each division manager the responsibility of its division, not allowing them to interfere between each other. Business units performances are measured following defined metrics, the staff is valuable and well prepared, and everyone is rewarded using an appropriate compensation system.
With its Management Developing Planning system the company is able to align all the business units in three business segments, even though this system is ‘extremely time consuming’ and ‘so much work’ i think is the best way to ‘keep together’ the different segments (electrical and electronics, commercial and industrial, compression, drilling and energy equipments). About the acquisitions of Champion and Cameron, both companies would give Cooper good opportunities, and following the guidelines for acquisitions seems that both companies fit in the group.
If i can base my considerations on the successful history of Cooper’s acquisitions, i would suggest him to acquire both, without worrying that their debt to total capitalization ratio would be around 60%. Champion has a strong brand name, is compatible with the electrical and electronic product line, and acquiring Champion, Cooper will have the possibility to expand overseas, the main problems are that Champion have poor management, old technologies and more relevant has little growth over the past years. But in my opinion they can be seen as opportunities to exploit, the company in the hands of Cooper can grow.
Cameron would expand the Cooper’s Compression and Energy Business Center, the company is not much mentioned in the case and financial data are not available. They are a iron works, that is a raw material that can be very useful across Cooper industries’. Seems that the more ‘problematic’ acquisition would be Champions, it needs several readjustments to fit in the organization for example they should improve the management, study the products and see what’s selling and what not and improve the 1950s technology. Would be a hard work but i think there is a lot to gain.
As i said before my suggestion is to acquire both Champion and Cameron. Being the two companies in two different segments, the ‘Cooperization’ will be handle by two different EVPs, so will be easier to manage the process, furthermore they can use the profits from Cameron to offset the price of the Champions acquisition. If that’s not possible i would prefer ‘Cooperize’ Cameron, that with little adjustments will become valuable and useful to the whole group; and maybe then they could seek for another less problematic company than Champion which operate in automotive industy.
If we wanna see some limits in the Cooper industries these could be: first of all the the over dependance from the US market, secondly the extreme Cooper’s ‘cash consciousness’ which can be seen is some sense, as an obstacle when this policy could preclude some valuable acquisitions, and finally having them a large number of rules to follow for new acquisitions, they could loose some opportunities.