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Case Study on Diversification at Cooper

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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

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) Substitutes (Cheaper Products)

High Entry Barriers

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 Coopers sustainable competitive advantage.
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OPPORTUNITIES & STRENGTHS

Grow Business Segments through More Acquisitions
Champion Cameron (main competitor)

Strategic Fit

More Power in the Oil & Gas Industry Develop foreign markets via Champion

Management Expertise

Champion Commercial & Industrial Iron Works Compression & Energy

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 Coopers 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 Champions executive planes Close Champions losing businesses Downsize Camerons Sales Force Integrate Coopers and Camerons 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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