Monday, May 21, 2012

Eaton To Buy Cooper Industries for $11.8 Billion

Diversified industrial manufacturer Eaton Corp struck a deal to buy electrical equipment maker Cooper Industries for $11.8 billion in cash and stock and said it would shift its incorporation to Ireland to save on taxes. Analysts said acquisitions are one way for companies to grow in a sluggish global economy.

The deal, Eaton's biggest ever, will allow the company to offer a broader range of electrical products, such as lighting and wiring devices, to markets ranging from mining to oil and gas and utilities, and help it expand in emerging markets while cutting costs.

Cleveland, Ohio-based Eaton will pay $72 per share for Cooper - $39.15 in cash and the rest in stock. Eaton shareholders will control almost three-quarters of the new Eaton Global Corp Plc, and administrative headquarters will remain in Ohio.

Incorporating in Ireland will shave about $160 million off Eaton's annual tax bill, said Chief Executive Sandy Cutler, who will lead the combined company. But he said synergies, not tax reduction, were the primary motivation for the deal.

When Cooper incorporated in Ireland last decade, it was one of several U.S. industrial companies, including Ingersoll Rand and Tyco International, that picked either Ireland or Switzerland to help lower their taxes.The tax component of the Eaton-Cooper deal is unique and is unlikely to be replicated by other companies.

Re-incorporation is a legal move that rarely has any bearing on where a company's headquarters are located. U.S. companies have been re-incorporating in Ireland and Switzerland in recent years, instead of the offshore tax havens of Bermuda and the Cayman Islands, reasoning that Ireland and Switzerland offer better protection from U.S. tax claims than small countries that are more dependent on U.S. goodwill.

The deal could spur more consolidation in the electrical equipment industry. Increased demand for electronics and retrofits to improve energy efficiency is prompting multi-industry companies such as Eaton and ABB Ltd. to expand their electrical equipment offerings.

Swiss engineering group ABB bought U.S. electrical components maker Thomas & Betts in January for $3.9 billion to ramp up its presence in the world's largest market for low-voltage products.

Analysts have said electrical products makers Hubbell Inc. and Acuity Brands Inc. could be attractive targets for industrial conglomerates such as France's Schneider Electric and Germany's Siemens AG.

More room for consolidation remains in the industry. The obvious one everyone is looking to is Hubbell. Hubbell is a mini Cooper - it's got a similar business mix, with Emerson Electric and Schneider as potential buyers.

Century-old Eaton makes power systems for data centers, hydraulics used in machinery, and truck transmissions. It recorded 2011 sales of $16 billion. It has stepped up acquisitions in recent years, closing nine deals last year.

Cooper, based in Dublin, had 2011 sales of $5.4 billion, with most of its sales to utilities and industrial markets. Its products include safety systems, lighting, circuit protectors and wiring devices used in homes and commercial buildings.

The Cooper acquisition will reduce Eaton's costs by $260 million a year by 2016, while adding $115 million a year to revenue.