The European Commission has approved the merger of Eaton Corp. (ETN) with Cooper Industries (CBE). This merger is expected to close in the second half of the year. Eaton is a renowned power management company while Cooper Industries specializes in electrical equipments. The merger allows both the companies to expand their reach in the global power market, both technically and geographically.
Eaton is leading power management company that provides energy-efficient solutions to its customers worldwide. Similarly, given the rising investments in the energy sector worldwide, Cooper also has made key global investments, acquisitions and also has created new products in order to benefit from this trend.
Therefore, the combination of the two is expected to provide critical energy saving technologies generating annual synergies of approximately $535 million by 2016. Further, given the geographical reach of Cooper, the combined company intends to accelerate its long-term growth by increasing its global presence to attractive end markets.
The agreement announced on May 21, 2012 is as per the Irish Takeover Rules. The newly formed company will be based in Ireland, the current location of Cooper Industries. The combined entity will be called Eaton Corporation plc. As per the agreement, Cooper Shareholders will receive $39.15 in cash and 0.77479 shares of New Eaton for each Cooper share.
Total equity value of the transaction has been fixed at $11.8 billion. Eaton shareholders are expected enjoy approximately 73% share new company while Cooper will have a share of approximately 27%. The acquisition will be financed through a combination of debt, equity and cash.
On GAAP basis, the new company is expected to be accretive to earnings by 35 cents in 2014 and by 45 cents in 2015, while on proforma basis, the deal is expected to increase earnings by 65 cents and 75 cents, respectively. Excluding the non-cash expense related to the amortization of intangibles arising from purchase accounting, positive effect from the acquisition is expected to be 65 cents in 2014 and 75 cents in 2015.
The electrical offering of Cooper includes electrical protection, power transmission and distribution, lighting and wiring components. Cooper’s offering specializes in provision of efficient and safe energy solution to customers globally.
Further, Eaton leads in power distribution, power quality, control and automation, power monitoring, and energy management products and services, offering managerial solutions for challenges in electrical, aerospace, hydraulics and vehicle sector. The combination allows the companies to enter new related industries, exploit emerging markets and provide wide technical service to customers globally.
Currently, we are maintaining a Zacks #2 Rank (short-term Hold recommendation) on Eaton Corporation and a Zacks #3 Rank on Cooper Industries.