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Case Study on Diversification at Cooper

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DIVERSIFICATION AT COOPER

Strategic Challenge: Buy Champion or

Cameron or both to reach sustainable
competitive advantage?
Solutions:

Buy both now

Internal Capabilities VRIO

External Opportunities S-C-P

Develop international diversification

strategy
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GENERAL ENVIRONMENT

Business Cycles
Operating Inefficiencies
Increased Competition
Need for Consolidation
Solution: Cooperization

LOCAL ENVIRONMENT

Growth from Diversification into:

Related industries: 1967-1970s

Unrelated industries: 1980s

High entry barriers (Factories expensive)

Intense Rivalry (Target market leaders)
Suppliers (Economies of scale)
Substitutes (Cheaper Products)
Buyers (Stable, profitable, and growing)
At Cooper: Crisis = Opportunity
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FIVE FORCES ANALYSIS

Intensity of
Rivalry (Many
Inefficient
Competitors)

High Entry
Barriers

Substitutes
(Cheaper
Products)

Cooper
Industries
Buyers
(No Power)

Suppliers
(No Power)

LOSSES & GAINS

Losses
Dresser and Carrier: compressors for
petrochemical applications
Black & Decker: Electric power tools
Gains
Hand Tools: hundreds of small companies
Gardner-Denver: Big but inefficient
Crouse-Hinds: Big and Efficient
Diversification = Additions & Subtractions
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INTERNAL ANALYSIS

Strengths
Clear Acquisition Strategies
Management Development & Planning
(MD&P)
Squeezing & Adding Value
Organizational structure
Weaknesses
Increased Debt
Cooper is good at digesting
acquisitions!
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HOW COOPER CREATES VALUE

Cash Flow is KING!

DYNAMIC organizational structure changes
with each acquisition
Strategic Planning is bottom-up
MD&P System
Manufacturing Services Group
These (and more) are difficult for
competitors to imitate and are the
sources of Coopers sustainable
competitive advantage.
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OPPORTUNITIES & STRENGTHS

Grow Business
Segments through
More Acquisitions

Champion
Cameron (main
competitor)

More Power in the Oil

& Gas Industry
Develop foreign
markets via Champion

Strategic Fit

Champion
Commercial &
Industrial
Iron Works
Compression &
Energy

Management Expertise

Cooper has a proven track record of

buying companies, but then
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THREATS & WEAKNESSES

Champion

Poor diversification
Losses and cost of
liabilities

Cameron

Anti-trust issues
Serious growth
potential?

Higher debt after

acquisition: 5560% of capital
Can it digest two
big meals at the
same time?

Cooper must be able to manage these

Threats & Weaknesses to succeed.
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STRATEGIC FIT

Champion

[-] Mismanaged, Bloated, Money-losing

[+] Brand Name & Overseas Markets

Cameron Iron Works

[+] Main competitor

[+] Cheap due to industry problems

Target companies reflect good strategic fit

with Coopers capabilities and intentions
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WHAT CAN COOPER DO?

Increase E&E Segment Sales and

Expand Overseas Market by buying
Champion
Dominate industry sector by buying
#1 competitor Cameron
Hit 2 birds with one stone
Explore International Diversification

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STRATEGIC OPTIONS

Buy

Which one? Champion, Cameron, both?

Status Quo

Do nothing
Prepare the company for other buying
opportunities
Wait until purchase price goes lower or
Cooper stock price goes higher
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WHAT COOPER SHOULD DO

BUY BOTH COMPANIES NOW!

Doable
Exploit Profit Opportunities to
Offset Losses
Grow two segments together

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ACTION PLAN

Conduct Due Diligence on Champion and

Cameron & look for Value (e.g.):

Sell Champions executive planes

Close Champions losing businesses
Downsize Camerons Sales Force
Integrate Coopers and Camerons R&D

Make sure No Anti-Trust Issues from

Cameron purchase
Check liabilities from closures
Meet CEOs of companies; make offer ASAP
Study International Diversification Strategy
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