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The board of directors for Cooper Industries, Inc., Houston, TX, has determined unanimously to reject a merger proposal from the slightly smaller Danaher Corporation, Washington, DC, in what it termed 'an unsolicited, inadequate and highly conditional proposal.' Danaher had proposed on Jul. 25 a merger through a stock-and-cash transaction valued at $6.5 billion to $7 billion including assumed debt, based on recent Danaher share prices.
The second offer Danaher has made to Cooper in two years, it triggered a public exchange of letters in the past few weeks as Danaher sought to gain Cooper shareholder approval for the deal as an alternative to a current Cooper Industries proposal to reincorporate in Bermuda.
'We believe that Danaher's proposal is an attempt to coerce Cooper shareholders into accepting an opportunistic bid to acquire Cooper at a low price,' said H. John Riley, Jr., chairman, president and CEO of Cooper. 'The value of Danaher's proposal is highly conditional. Danaher has made it clear that its proposal is very favorable to the Danaher stockholders, but our board's responsibility is to maximize value for Cooper's shareholders.'
The Danaher offer represents a 30% to 39% premium over Cooper's closing stock price at the end of July and a 38% to 48% premium over Cooper's average share price over the past three months.
With revenues in 2000 of $4.5 billion, Cooper is slightly larger than Danaher. Cooper's revenue base comes from about 80% electrical products, including brands like Bussman in circuit protection, Crouse Hinds in hazardous environment electrical products, B-Line in cable trade, and Halo in lighting fixtures.
In a conference call with industry analysts on Aug. 1, Larry Culp, president and CEO of Danaher, said that while the revenues of the two companies are pretty comparable, Danaher's total floor space for all its facilities is less than ten million square feet, while Cooper's is over 20 million square feet. 'In every significant acquisition we've done, we have substantially increased revenues per square foot and we would expect to do the same in this combination,' Culp said.
Danaher said the proposed strategic combination would create a significant global enterprise with combined revenues in excess of $8 billion, operating profit in excess of $1.2 billion, a strong balance sheet and leverageable strengths across many product platforms that would drive revenue growth, reduce costs and improve operational efficiency. Danaher expects the transaction to be at least 10% accretive to its cash earnings per share in the first year based on modest synergies.
Danaher's proposed merger would give Cooper shareholders consideration consisting of 75% Danaher stock and 25% cash. Specifically, each Cooper share would be converted into $14.50 in cash and 0.7650 Danaher shares at the high end of the proposed range, or $13.50 in cash and 0.7123 Danaher shares at the low end of the proposed range (subject to cash elections if desired). The Danaher proposal would provide a value of $54.00 to $58.00 for each Cooper share based on Danaher's closing share price on July 20, 2001, the day before the two companies met to discuss Danaher's proposal.
'This is a compelling transaction for both companies from both an industrial and financial perspective,' said Culp. 'Cooper's product portfolio is highly complementary to Danaher's, adding significant scale to our power quality and reliability product lines, bringing a strong portfolio of leading electrical products brand franchises, and significantly enhancing the product offering we provide our electronic, electrical, and industrial distribution customers. In addition, the strength of the combined balance sheet and free cash flow will create new opportunities for growth and superior shareholder return.
'We believe Cooper shareholders will find our proposal preferable to Cooper's proposed