Should Cooper Industries Acquire Nicholson File Company?

Cooper Industries has been expanding through diversification since 1996. Coopers requirements to acquire a company has three major components. The target company must be: 1. In an industry in which Cooper could become a major player 2. In an industry that is fairly stable, with a broad market for the products and a product line of small ticket items; and 3. A leader in its market segment. When looking at the criteria that Ciziks company (Cooper Industries), set forth relative to acquisitions, the acquisition of Nicholson meets all three objectives plus has significant potential short and long-term potential. Cooper management feels that by eliminating redundancy and streamlining Nicholsons operations this potential can be realized. Currently, Nicholsons financial history boasts a 2% increase in profit annually but this percentage is way below the industry average of 6%. Cooper management proposed that if Nicholson stops selling to every market, increased efficiencies would result and cut cost of goods sold from 69% of sales to 65%. It was also suggested that the acquisition could lower selling, general, and administrative expenses from 22% of sales to 19%. Nicholsons position in the file and rasp market where it holds a 50% market share of a $50 million dollar market meets all three of Coopers objectives. Furthermore, Nicholsons brand name within the hand saw and saw blade industry is strong and Nicholson holds a 9% market share in the $200 million dollar their only major competitor was Sears and Diston who held a larger market share.