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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

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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 Substitutes
Rivalry (Many High Entry (Cheaper
Inefficient Barriers Products)
Competitors)

Cooper
Industries
Buyers Suppliers
(No Power) (No
5 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 Strategic Fit
Segments through Champion
More Acquisitions Commercial &
Champion Industrial
Cameron (main Iron Works
competitor) Compression &
Energy
More Power in the Oil
& Gas Industry Management Expertise
Develop foreign
markets via Champion

Cooper has a proven track record of

buying companies, but then

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 THREATS & WEAKNESSES
Champion Higher debt after
Poor diversification acquisition: 55-
Losses and cost of 60% of capital
liabilities Can it digest two
Cameron big meals at the
Anti-trust issues same time?
Serious growth
potential?

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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