WHATS NEXT Case Study on Diversification at Cooper

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WHATS NEXT?Case Study on Diversification at
Cooper

• By

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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

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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
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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 (MDP)
• 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
• MDP 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)
• 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 55-60 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 EE 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 RD
• 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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