Eaton acquisition of Cooper running on schedule

By Jack

The approval
a week ago by Eaton and Cooper shareholders as to the acquisition of Cooper by
Eaton means that the $11.8 billion transaction continues on track to be
completed by the end of the year.

Alexander M.
“Sandy” Cutler, Eaton’s chairman and CEO, told financial analysts during an
earnings call, that the vote was “obviously, a very important day for both
Cooper shareholders and Eaton shareholders. And we very much appreciate that
support from our shareholders for this deal. We’re now anxious to get this
closed in the fourth quarter, and we will then, in 2013, be in a position to
report on the results of the new combined company.”  (The quotes are attributed
to Cutler in a transcript of the call provided by )

In fact,
Cutler during an interview on MSNBC’s MAD Money Show, told host Jim
Kramer that with the acquisition of Cooper means the electrical segment would
now make up 60% of the newly combined company’s revenues, making it their
largest current operating business.  

Cutler told
analysts that Eaton now has received regulatory approval regarding the
acquisition from eight countries: United States, Canada, South Korea, Turkey,
Brazil, Mexico, South Africa and Russia. Eaton is awaiting regulatory approvals
from China and the EU. After those approvals are received, there will be two
court hearings: One to sanction the results of the vote and then a final
hearing after the regulatory filings are done.

Eaton and Cooper
will be combined in a new Irish holding company that will be renamed Eaton
Corp. plc (“New Eaton”). The newly created company will be led by Cutler. Based
on 2011 numbers, the combined firm would have had revenues of $21.5 billion and
EBITDA of $3.1 billion.

Eaton is a
highly diversified industrial manufacturer headquartered in Cleveland.  Cooper
is a diversified manufacturer of electrical tools and components with 2011
revenues of $5.4 billion and has been in business since 1833. It is
incorporated in Ireland.

Last week
Eaton reported lower than expected quarterly profits due to weaker results in its
units that supply to the automotive, plane and truck industries as well as the
economic downturn in Europe. But its margins were strong and the stock rose
right after the quarterly results were announced. Its electrical segment did extremely
well and was a bright spot for the manufacturer.  It is obvious that Cooper
would be a good fit with Eaton. In reporting its own quarterly results, Cooper
reported that its operating income was up about 18%.

In fact, Eaton
said its Electrical Americas segment had an “outstanding quarter” actually
reporting a record quarter in terms of revenues and operating revenues. Adding
Cooper to its electrical segments “gives you a good feel for why we’re so
excited about this particular acquisition.”

Cutler said
there is reason for optimism for its electrical segment. He said on MSNBC that
he expects housing starts to eventually roar back to 1.5 million units, which
would be outstanding news for the electrical market. He cautioned that may be a
few years out.

In addition,
Cooper and Eaton, through its broad range of electrical solutions and products,
will be involved in the reconstruction efforts to restore power to the
northeast after Hurricane Sandy’s ferocious path of destruction. He told
analysts there would be an increase in business but could not say how much.

expects its Electrical Markets index to grow 3% to 4% next year while its
Electrical Rest of World side will be up 2% to 3%. “We’re not as bullish on
Europe as we are prospectively on what’s going to go on in Asia-Pacific,” Cutler
said according to the transcript.

Cutler said
the next quarter will be particularly complex for Eaton in reporting its
results because of the acquisition. The quarter will include both the full
quarter of Eaton operating results and probably a partial quarter of Cooper

He also
pointed out that various costs associated with the acquisition that Eaton incurs
in 2012 in the fourth quarter that the company had originally anticipated
occurring in 2013 will not occur again in 2013. “So it’s to that degree we’re
pulling them from one year to another.”

Eaton will
not be providing fourth quarter guidance, which is typically its practice, and will
not be updating its full year guidance in light of this pending acquisition. “But
what we can say is that we expect our current business results in the fourth
quarter for Eaton to look similar to the third quarter performance,” Cutler

expects a gradual economic recovery with a weaker early part of the year in
2013 and then stronger activity in the second half.

In Europe, Eaton
believes those “soggy” conditions will continue through the first half of next

Jack Keough was the editor of Industrial Distribution magazine for more than 26 years. He often speaks at many industry events and seminars. He can be reached at or

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