Cooper industry diversification strategy

7/28/2019 Cooper industry diversification strategy

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WHATS NEXT? Case Study on Diversification at Cooper

By:


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DIVERSIFICATION AT COOPER

Strategic Challenge: Buy Championor Cameron or both to reachsustainable competitive advantage?Solutions:

Buy both nowInternal Capabilities VRIO

External Opportunities S-C-PDevelop international diversificationstrategy


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GENERAL ENVIRONMENT

Business CyclesOperating Inefficiencies

Increased CompetitionNeed for Consolidation

Solution: Cooperization


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LOCAL ENVIRONMENTGrowth from Diversification into:

Related industries: 1967-1970sUnrelated 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 ANALYSISIntensity of

Rivalry (ManyInefficient

Competitors)

Substitutes(CheaperProducts)High Entry

Barriers

CooperIndustries

Buyers(No Power)

Suppliers(No Power)


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LOSSES & GAINSLosses

Dresser and Carrier: compressors forpetrochemical applicationsBlack & Decker: Electric power tools

GainsHand Tools: hundreds of small companies

Gardner-Denver: Big but inefficientCrouse-Hinds: Big and Efficient

Diversification = Additions & Subtractions


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INTERNAL ANALYSISStrengths

Clear Acquisition StrategiesManagement Development & Planning(MD&P)Squeezing & Adding ValueOrganizational structure

WeaknessesIncreased Debt

Cooper is good at digestingacquisitions!


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HOW COOPER CREATES VALUE

Cash Flow is KING!DYNAMIC organizational structure changeswith each acquisition

Strategic Planning is bottom-upMD&P SystemManufacturing Services Group

These (and more) are difficult forcompetitors to imitate and are the

sources of Coopers sustainablecompetitive advantage.


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OPPORTUNITIES & STRENGTHSGrow BusinessSegments throughMore Acquisitions

ChampionCameron (maincompetitor)

More Power in the Oil& Gas IndustryDevelop foreignmarkets via Champion

Strategic FitChampion Commercial & IndustrialIron Works Compression & Energy

Management Expertise

Cooper has a proven track record of buyingcompanies, but then


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THREATS & WEAKNESSESChampion

Poor diversificationLosses and cost of liabilities

CameronAnti-trust issuesSerious growthpotential?

Higher debt afteracquisition: 55-60% of capital

Can it digest twobig meals at thesame time?

Cooper must be able to manage theseThreats & 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 fitwith Cooper s capabilities and intentions


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WHAT CAN COOPER DO?

Increase E&E Segment Sales andExpand Overseas Market by buyingChampionDominate industry sector by buying#1 competitor CameronHit 2 birds with one stoneExplore International Diversification


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STRATEGIC OPTIONS

BuyWhich one? Champion, Cameron, both?

Status QuoDo nothingPrepare the company for other buyingopportunities

Wait until purchase price goes lower orCooper stock price goes higher


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WHAT COOPER SHOULD DO

BUY BOTH COMPANIES NOW!

DoableExploit Profit Opportunities toOffset Losses

Grow two segments together


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ACTION PLANConduct Due Diligence on Champion andCameron & look for Value (e.g.):

Sell Champions executive planes Close Champions losing businesses Downsize Camerons Sales ForceIntegrate Coopers and Camerons R&D

Make sure No Anti-Trust Issues fromCameron purchase

Check liabilities from closuresMeet CEOs of companies; make offer ASAPStudy International Diversification Strategy


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Cooper industry diversification strategy