The management of Cooper Industries, Inc., is considering whether to attempt to acquire the Nicholson File Company, a leading
manufacturer of hand tools. The Nicholson family and other members of the management group own about 20% of the Nicholson
stock; the remainder is publicly held. From the standpoint of Cooper an affirmative decision may involve Cooper in a bidding
contest with two other companies, which have already bought up part of the outstanding Nicholson stock and made tender offers
in an effort to acquire control of Nicholson. If cooper decides to press forward, it must determine what price it will have
to pay in order to acquire control of Nicholson, whether it can reasonably afford to pay this price for Nicholson, and the
form in which its offer to Nicholson’s shareholders should be made. These decisions must be made in the light of the
interest, motivations, and bargaining positions of several widely divergent groups of Nicholson stockholders. After these
questions are resolved, the Cooper management must determine its precise acquisition tactics.
This case provides an opportunity to analyze an explicit consideration of some the specialized problems incountered in
mergers and acquisitions. This is another opportunity to consider capital budgeting and valuation.
1. If you were Mr. Cizik of Cooper Industries, would you try to gain control of Nicholson File Company in May 1972?
2. What is the maximum price that Cooper can afford to pay for Nicholson and still keep the acquisition attractive from
the standpoint of Cooper? (Treasury bills yielded 5.6% in May 1972.)
3. What are the concerns and what is the bargaining position of each group of Nicholson stockholders? What must Cooper
offer each group in order to acquire its shares?
4. On the assumption that the Cooper management wants to acquire at least 80% of the outstanding Nicholson stock and to
make the same offer to all stockholders, what offer must Cooper management make-in terms of dollar value and of the form of
payment (cash, stock, debt)?
5. What should Mr. Cizik recommend that the Cooper management do?
Some suggestions for analysis follow.