Salina — The local effects of Eaton Corp. acquiring Cooper Industries plc, the parent of Cooper Crouse-Hinds, won’t be known until after the deal’s closing, which is at least several months away. Eaton (NYSE: ETN), currently based in Cleveland, announced on May 21 that it has reached an agreement to acquire Dublin, Ireland–based Cooper Industries […]
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Salina — The local effects of Eaton Corp. acquiring Cooper Industries plc, the parent of Cooper Crouse-Hinds, won’t be known until after the deal’s closing, which is at least several months away.
Eaton (NYSE: ETN), currently based in Cleveland, announced on May 21 that it has reached an agreement to acquire Dublin, Ireland–based Cooper Industries (NYSE: CBE). The cash and stock deal is valued at about $11.8 billion.
It will bring together Eaton, which generated $16 billion in revenue in 2011, and Cooper Industries, which produced $5.4 billion in revenue that year. Eaton manufactures products for managing electrical, hydraulic, and mechanical power. Cooper Industries makes electrical components and tools.
The deal will include the Cooper Crouse-Hinds division of Cooper Industries that is headquartered in Salina at the corner of Wolf Street and 7th North Street. Cooper Crouse-Hinds produces electrical equipment for harsh and hazardous environments. It generates about $1 billion in annual sales.
However, Eaton cannot share any plans for Cooper Industries or its divisions until after the acquisition is complete, according to its chairman and CEO, Alexander Cutler.
“There are lots of specifics to be worked out, and we’ll be able to talk more about them post-closing,” Cutler said during a conference call to discuss the deal.
Eaton expects the acquisition to close in the fall of this year. Before that, Irish law prohibits the company from having much contact with Cooper Industries, according to Gary Klasen, an Eaton spokesperson.
“The fact that Cooper Industries is in Ireland, there are very strict rules about us interacting with them until the deal goes through,” he says. “It’s going to be a while before we have any information and can work with the facilities and actually have contact with anybody.”
The timeline for closing is imprecise because the acquisition must still receive regulatory approvals, including sanction from the High Court of Ireland, according to Eaton. Plus, a majority of Cooper Industries shareholders and two-thirds of Eaton voting shareholders must vote in favor of the transaction.
The shareholder votes are set for August. Both companies’ boards of directors have already unanimously recommended the deal.
After an acquisition, Eaton typically sends groups to evaluate a company’s operations, Klasen says.
“Once the transaction closes, we put together what we call integration teams, and they work with the different locations, facilities,” he says. “They look at the synergy areas. Once they have some specifics, they’ll share that first with employees.”
Eaton projects $375 million in operating synergies from the Cooper Industries deal by 2016. Savings in operating costs would make up $260 million, with the remaining $115 million coming from sales.
The company provided no further details on how that might affect Cooper Crouse-Hinds in Salina or any of the division’s five other major locations. Cutler did mention the division during his conference call, describing it as a “great industry name.”
“[It is] a global leader in solutions for harsh and hazardous environments, another great addition, another complementary set of capabilities for Eaton,” he said.
Acquisition details
Eaton will reincorporate by forming a new company in Ireland after it closes on the Cooper Industries deal. The company will take the name Eaton Global Corp. Plc, or a version of that moniker. Eaton believes it will trade on the New York Stock exchange under the ticker symbol ETN.
The move to Ireland will save about $160 million per year in cash management and tax benefits, the company projects.
Eaton will pay Cooper Industries shareholders $39.15 in cash and give them 0.77479 shares of the new company’s stock for each Cooper Industries share they hold. Eaton shareholders will receive one share of the new company’s stock for each of their Eaton shares. That will give current Eaton shareholders about 73 percent of the company, while Cooper Industries shareholders will have 27 percent of it.
Eaton plans to finance the acquisition using debt, cash, and equity. It has $6.75 billion in fully underwritten bridge financing from Morgan Stanley Bank, N.A., Morgan Stanley Senior Funding, Inc., and Citibank, N.A., Cutler said. It expects to refinance the bridge loans in the future by issuing new term debt and using cash on hand. The company may also sell some assets to fund the refinancing.
Just under half of the new company’s sales, 49 percent, will be in the United States, Cutler said. Another 25 percent will be in emerging international markets, and 26 percent will be international sales in developed markets.
Cooper Industries will boost Eaton’s sales of electrical products, Cutler said. Of Eaton’s 2011 sales, 45 percent were electrical products, while the rest were a mixture of hydraulics, aerospace, truck, and automotive products. Cutler projected that 59 percent of the company’s sales will be electronics after the acquisition.
Eaton is aiming for annual sales growth between 12 percent and 14 percent by 2015, according to Cutler.
“We are convinced that this combination of our businesses creates a highly, highly attractive enterprise with increased growth and earnings capabilities going forward,” he said.
Cooper Industries referred all requests for comment to its senior vice president and CFO, David Barta. He did not respond to multiple telephone messages.
Eaton Corp. employs 72,000 people worldwide, while Cooper Industries has 26,000 global employees.
