Eaton Corp. to acquire Cooper Industries for $11.8 billion

Complementary products and markets in power management are expected to create opportunities for growth in the global electrical industry, Eaton said.

06/04/2012


Diversified industrial manufacturer Eaton Corporation (NYSE: ETN) and electrical equipment supplier Cooper Industries plc (NYSE: CBE) announced a definitive agreement under which Eaton will acquire Cooper. Cooper will be combined under a new company incorporated in Ireland, where Cooper is incorporated today. The newly created company, which is expected to be called Eaton Global Corporation Plc or a variant thereof (“New Eaton”), will be led by Alexander M. Cutler, Eaton’s current chairman and chief executive officer. Combined 2011 companies’ revenues were cited at $21.5 billion.

In the joint May 21 announcement from Cleveland, Ohio, and Dublin, Ireland, the companies said the move “will significantly increase the capabilities and geographic breadth of the combined company’s power management portfolio and electrical business.”

Founded in 1833, Cooper is said to be a leading supplier of electrical equipment with a wide range of electrical products including electrical protection, power transmission and distribution, lighting and wiring components, and products that enhance customer energy efficiency and safety across a number of end markets globally.

Courtesy: Cooper Industries
Founded in 1911, Eaton is said to be a global power management company. Its electrical business is a global leader in power distribution, power quality, control and automation, power monitoring, and energy management products and services, answering power management challenges through its electrical, aerospace, hydraulics, and vehicle businesses.

At the close of the transaction, expected in second-half 2012, Eaton and Cutler called the combination of Eaton’s power distribution and power quality equipment and systems with Cooper’s diversified component brands, global reach, and international distribution a compelling combination for the electrical industry.

“We’re excited about bringing together two great companies to create shareholder value and continue our global growth. This combination significantly expands our ability to better serve our customers with their demands for critical energy-saving technologies as they address the impact of the world’s growing energy needs,” Cutler said.

“We are extremely pleased to become part of Eaton’s global electrical business,” said Kirk Hachigian, chairman and chief executive officer of Cooper. “This combination creates endless opportunities to accelerate growth and serve our global customers through combining technology, distribution, penetrating important vertical industries, and entering new emerging markets. The two companies are a perfect fit in every respect.”

The combined company would have had historical 2011 revenues of $21.5 billion and EBITDA (earnings before interest, taxes, depreciation, and amortization) of $3.1 billion, and it is expected to enhance shareholder value by:

  • Leveraging complementary product offerings between Eaton and Cooper’s electrical businesses
  • Accelerating long-term growth potential by increasing exposure to attractive end markets and service opportunities
  • Better satisfying customer global demands for energy efficiency and electrical safety
  • Generating approximately $535 million in expected annual synergies by 2016.

Financial details provided by the companies

The acquisition is expected to be accretive to operating earnings per share by $0.35 in 2014 and by $0.45 in 2015. Excluding the non-cash expense related to the amortization of intangibles arising from purchase accounting, the acquisition is expected to be accretive to operating earnings per share by $0.65 in 2014 and by $0.75 in 2015, the companies said. The acquisition will be financed with a mixture of cash, debt, and equity.

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Under the terms, Cooper shareholders will receive $39.15 in cash and 0.77479 shares of New Eaton for each Cooper share. Based on the closing price for Eaton common stock on Friday May 18, 2012, Cooper shareholders will receive cash and shares valued at $72.00 per share, representing a premium of 29% and a total transaction equity value of approximately $11.8 billion, the companies said.

Eaton shareholders will receive one share of the new company for each share of Eaton that they own upon closing. The transaction will be taxable, for U.S. federal income tax purposes, to Eaton shareholders and the Cooper shareholders. Eaton shareholders are expected to own approximately 73% of the combined company while legacy Cooper shareholders are expected to own approximately 27%. Shares of New Eaton will be registered with the U.S. Securities and Exchange Commission (SEC) and are expected to trade on the New York Stock Exchange under the ticker symbol ETN.

Lighting - Courtesy: Cooper Industries

Eaton has secured a $6.75 billion fully underwritten bridge financing commitment from Morgan Stanley Bank, N.A.; Morgan Stanley Senior Funding, Inc.; and Citibank, N.A. to finance the cash portion of the acquisition. Eaton plans to later refinance these bridge borrowings through a new term debt issuance, use of cash on hand, and the possible sale of assets.

The total expected annual synergies of $535 million comprise $375 million of pre-tax operating synergies, and $160 million of global cash management and resultant tax benefits related to the combined company being incorporated in Ireland.

The statement that this acquisition is earnings accretive should not be interpreted to mean that the earnings per share in the current or any future financial period will necessarily match or be greater than those for the relevant preceding financial period.

The fully diluted share capital of Cooper assumes full exercise of the outstanding Cooper share options and vesting of outstanding share awards under the Cooper Share Plans. The combination is subject to the terms of a transaction agreement among Eaton, Cooper, New Eaton, and certain other parties. The acquisition of Cooper by New Eaton will be effected by means of a “scheme of arrangement” under Irish law pursuant to which New Eaton will acquire all of the outstanding shares of Cooper from Cooper shareholders for cash and shares (the “acquisition”). The acquisition will be subject to the terms and conditions to be set forth in the scheme of arrangement document to be delivered to Cooper shareholders.

Courtesy: Cooper Industries

To become effective, the scheme of arrangement will require, among other things, the approval of a majority in number of Cooper shareholders, present and voting either in person or by proxy at a special Cooper shareholder meeting, representing 75% or more in value of the Cooper shares held by such holders. Following the requisite Cooper shareholder approval being obtained, the sanction of the Irish High Court is also required. In addition, the transaction agreement must be adopted by shareholders holding two-thirds of the outstanding voting shares of Eaton in a special shareholder meeting. The acquisition, which is unanimously recommended by the boards of directors of both companies, also is subject to receipt of certain regulatory approvals and certain other conditions.

Eaton is a diversified power management company with more than 100 years of experience providing energy-efficient solutions that help its customers effectively manage electrical, hydraulic, and mechanical power. With 2011 revenues of $16.0 billion, Eaton is a global technology leader in electrical components, systems, and services for power quality, distribution, and control; hydraulics components, systems, and services for industrial and mobile equipment; aerospace fuel, hydraulics, and pneumatic systems for commercial and military use; and truck and automotive drivetrain and powertrain systems for performance, fuel economy, and safety. Eaton has approximately 72,000 employees and sells products to customers in more than 150 countries.

Cooper is a diversified global manufacturer of electrical components and tools, with 2011 revenues of $5.4 billion. Founded in 1833, Cooper’s sustained success is attributable to a constant focus on innovation and evolving business practices, while maintaining the highest ethical standards and meeting customer needs. Cooper has seven operating divisions with leading positions and world-class products and brands including Bussmann electrical and electronic fuses; Crouse-Hinds and CEAG explosion-proof electrical equipment; Halo and Metalux lighting fixtures; and Kyle and McGraw-Edison power systems products. With this broad range of products, Cooper is uniquely positioned for several long-term growth trends including the global infrastructure build-out, the need to improve the reliability and productivity of the electric grid, the demand for higher energy-efficient products, and the need for improved electrical safety. In 2011, 62% of total sales were to customers in the industrial and utility end-markets and 40% of total sales were to customers outside the United States. Cooper has manufacturing facilities in 23 countries as of 2011.

- Edited by Mark T. Hoske, content manager CFE Media, Control Engineering, Plant Engineering, and Consulting-Specifying Engineer, mhoske(at)cfemedia.com.

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