Mega Merger

One of the largest mergers to date in 2012 is when Eaton Corp (ETN) bought Cooper Industries (CBE) for $11.8 billion in May, 2012. Under the terms of the cash and stock buyout offer, Cooper shareholders will receive $39.15 in cash and 0.77479 shares of Eaton for each Cooper share. The deal values Cooper Industries at $72 per share, a 29% premium to its close when the deal was made. It is expected to add to Eaton's earnings per share and bolster the Cleveland-based company's revenue by roughly a third through an expansion of its power systems and electrical products businesses and geographic reach. The deal is expected to be closed in the second half of 2012. Through the integration and merger of the two companies, current C.E.O of Eaton Corp, Alexander M. Cutler, will run the newly merged corporation and operate its services from its Ireland headquarters which is where Cooper Industries is currently based. Eaton moving from Cleveland will save the company millions in tax savings as there are lower taxes available in Ireland.

This major strategic move by Eaton Corp to merge with Cooper Industries diversified the company through related backward integration. The compelling combination of Eaton's power distribution and power quality equipment and systems with Cooper's diversified component brands, global reach and international distribution creates a game changer to serve the electrical industry," said Cutler. Cooper Industries manufactures a high quality brand of electrical products and tools which could be used inside of Eaton Corp's operations. Cooper Industries will add strength to Eaton's power transmission and distribution offerings. This would cut production cost and improve quality by having a major supplier to its core businesses in the industrial electric world.

Additionally, through this expansion there are high expectations amongst both operating companies. The deal is also expected to generate $535 million in cost synergies by 2016, while expanding both companies' market reach and product offerings. Both companies combined revenue will increase to $21.5 billion and earnings before interest, taxes, depreciation and amortization (EBITDA) of $3.1 billion. The merger will also strengthen Eaton Corp's competitive advantage in this market to compete against other leading engineering conglomerates. They can expect the acquisition problems of integration, and maybe lack of synergy is the deal does not go smoothly. I think that it may be a match made in heaven because they are complementary companies that both have a good reputation and market share in areas where they compete.