Cooper Industries Case Study
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Transcript Cooper Industries Case Study
WHAT’S NEXT?
Case Study on Diversification at Cooper
By:
DIVERSIFICATION AT COOPER
Strategic Challenge: Buy Champion or
Cameron or both to reach sustainable
competitive advantage?
Solutions:
Buy both now
Internal Capabilities VRIO
External Opportunities S-C-P
Develop international diversification
strategy
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GENERAL ENVIRONMENT
Business Cycles
Operating Inefficiencies
Increased Competition
Need for Consolidation
Solution: Cooperization
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LOCAL ENVIRONMENT
Growth from Diversification into:
Related industries: 1967-1970s
Unrelated industries: 1980s
High entry barriers (Factories expensive)
Intense Rivalry (Target market leaders)
Suppliers (Economies of scale)
Substitutes (Cheaper Products)
Buyers (Stable, profitable, and growing)
At Cooper: Crisis = Opportunity
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FIVE FORCES ANALYSIS
Intensity of
Rivalry (Many
Inefficient
Competitors)
High Entry
Barriers
Substitutes
(Cheaper
Products)
Cooper
Industries
Buyers
(No Power)
Suppliers
(No Power)
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LOSSES & GAINS
Losses
Dresser and Carrier: compressors for
petrochemical applications
Black & Decker: Electric power tools
Gains
Hand Tools: hundreds of small companies
Gardner-Denver: Big but inefficient
Crouse-Hinds: Big and Efficient
Diversification = Additions & Subtractions
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INTERNAL ANALYSIS
Strengths
Clear Acquisition Strategies
Management Development & Planning
(MD&P)
Squeezing & Adding Value
Organizational structure
Weaknesses
Increased Debt
Cooper is good at “digesting”
acquisitions!
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HOW COOPER CREATES VALUE
Cash Flow is KING!
DYNAMIC organizational structure changes
with each acquisition
Strategic Planning is bottom-up
MD&P System
Manufacturing Services Group
These (and more) are difficult for
competitors to imitate and are the
sources of Cooper’s sustainable
competitive advantage.
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OPPORTUNITIES & STRENGTHS
Grow Business
Segments through
More Acquisitions
Champion
Cameron (main
competitor)
More Power in the Oil
& Gas Industry
Develop foreign
markets via Champion
Strategic Fit
Champion
Commercial &
Industrial
Iron Works
Compression &
Energy
Management Expertise
Cooper has a proven track record of buying
companies, but then…
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THREATS & WEAKNESSES
Champion
Poor diversification
Losses and cost of
liabilities
Cameron
Anti-trust issues
Serious growth
potential?
Higher debt after
acquisition: 5560% of capital
Can it digest two
big “meals” at the
same time?
Cooper must be able to manage these
Threats & Weaknesses to succeed.
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STRATEGIC FIT
Champion
[-] Mismanaged, Bloated, Money-losing
[+] Brand Name & Overseas Markets
Cameron Iron Works
[+] Main competitor
[+] Cheap due to industry problems
Target companies reflect good strategic fit
with Cooper’s capabilities and intentions
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WHAT CAN COOPER DO?
Increase E&E Segment Sales and
Expand Overseas Market by buying
Champion
Dominate industry sector by buying
#1 competitor Cameron
Hit 2 birds with one stone
Explore International Diversification
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STRATEGIC OPTIONS
Buy
Which one? Champion, Cameron, both?
Status Quo
Do nothing
Prepare the company for other buying
opportunities
Wait until purchase price goes lower or
Cooper stock price goes higher
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WHAT COOPER SHOULD DO
BUY BOTH COMPANIES NOW!
Doable
Exploit Profit Opportunities to
Offset Losses
Grow two segments together
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ACTION PLAN
Conduct Due Diligence on Champion and
Cameron & look for Value (e.g.):
Sell Champion’s executive planes
Close Champion’s losing businesses
Downsize Cameron’s Sales Force
Integrate Cooper’s and Cameron’s R&D
Make sure No Anti-Trust Issues from
Cameron purchase
Check liabilities from closures
Meet CEOs of companies; make offer ASAP
Study International Diversification Strategy
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