(818) 547-4500 E-mail: bwalko@sokoloffco.com
Transaction
Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail bwalko@sokoloffco.com with your contact information.

Archives > Transaction Case Study 63

SOKOLOFF & COMPANY CASE STUDY
N Eaton Corporation (NYSE: ETN) to acquire
Cooper Industries plc (NYSE: CBE)

DATE ANNOUNCED: May 21, 2012
BUYER:  Eaton Corporation (NYSE: ETN) 
SELLER:  Cooper Industries plc (NYSE: CBE) 
PURCHASE PRICE:  $11.8 Billion

FORM OF PURCHASE PRICE:  A combination of cash, debt and equity.  Under the terms of the deal each stockholder will receive $39.15 in cash and .077479 of share in a newly created company:  Eaton Global Corp. Plc.  The combination is worth $72 per share.  Eaton will use a $6.75 billion bridge financing facility from Morgan Stanley Bank, Morgan Stanley Senior Funding Inc. and Citibank to fund the cash portion of the buyout.

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES


Year
2010 2011 Trailing Twelve Months
Year Ending
March 31, 2012

Revenue

$5.1B

$5.4B

$5.5B

EBITDA

$719.6M

$952.7M

$969.1M

Cash

 

 

$1.2B

Debt

 

 

$1.4B

Purchase Price

 

 

$11.8B

Enterprise Value

 

 

$12.06B

Multiple of Revenue

 

 

2.18

Multiple of EBITDA

 

 

12.45

TRANSACTION DRIVERS:  The acquisition will not only significantly increase the capabilities and geographic breadth of the combined company’s power management portfolio and electric business but it is expected to achieve $375 million of operational synergies (i.e. estimated cost savings and added revenue resulting from the combination).  There will also be a tax benefit of about $160 million per year as the new company will incorporate in Ireland.   According to Ajay Kejriwal, an FBR Capital Markets analyst, “The combined company leverages complementary products, accelerates long-term growth opportunities and increases exposure to high-potential end markets.”

SOKOLOFF COMMENTARY:
A creative merger structure which leaves Eaton shareholders with about 75% of the share value should prove worthwhile.  The merged business will be more heavily leveraged than either was before, with about a total $12 billion debt load, representing some 3.7x trailing combined EBITDA.  The new company will retire the bridge financing by issuing term debt after the closing.  At current interest rates, such debt will likely have a fixed coupon of 5%-6%.  Synergy savings from integrating the businesses plus the tax advantage will contribute to retiring the debt.  The end result will likely be increasing dividend yields down the road for shareholders, thus making the stock increasingly attractive in the years to come.

Return to Archives