Cooper Industries Corporate Strategy

Re: Cooper Industries Corporate Strategy (A)

Elizabeth Chad

Diagnosis:

Cooper Industries is spreading itself out too thin by diversifying its business into many different segments too quickly. This is causing them to acquire too much debt. This is especially the case with the new companies they are considering for acquisition Champion, and Cameron Iron Works. This also happens to be their biggest problem when this case was written, a dilemma of whether or not to acquire both of these firms simultaneously, which would send their debt ratio above their accepted rate to 55%-60% of total capital. If they do not slow down the acquiring process, and keep their debt-capital ratio low, they could risk bankruptcy of the firm in the future and a possible takeover of Cooper by another firm.

Analysis:

Cooper Industries has been diversifying itself since the onset of the corporation. It is their business strategy in order to stay ahead of the market. They have three major segments, electrical and electronic, commercial and industrial, and compression and drilling. They seek to acquire firms for diversification that have stable earnings, products that serve basis needs, have high quality products, and are the leaders in their markets. When acquiring products for complementary products, cooper wants to “broaden existing product lines”, have widespread brand name recognition, serve a broad customer base and offer enhanced earnings through cost management. The two companies they are considering for takeover Champion which, is in the Commercial and Industrial division, and Cameron Iron Works, which is in the Compression and Drilling division. They both are profitable industries, however, Cooper needs to choose one in order to keep its debt ratio low, as well as expand its business by acquiring a complementary firm in order to broaden its