Consolidation trends: What does Eaton’s purchase of Cooper mean?

By Bridget McCrea

Last week’s announcement that industrial manufacturing firm Eaton Corporation would buy Cooper Industries Plc, for $11.8 billion made some distributors wonder what attracted the former auto parts maker to a Dublin, Ireland-based electrical equipment supplier that relies heavily on a distributor network to sell its products.

Eli Lustgarten, a senior research analyst at Longbow Research in Cleveland, says there had been speculation about a possible merger for several months now, and that Cooper Industries was very often the center of attention as a possible candidate. Lustgarten says Cooper and Rockwell Automation rest just under the top tier of electrical equipment companies, where the “top five” includes Siemens, Schneider, ABB, Emerson, and General Electric.

“This is an area where we’ve seen a lot of consolidation recently, with ABB purchasing Thomas & Betts for $3.9 billion in January,” Lustgarten explains. “The Eaton announcement wasn’t a total surprise considering that Cooper – which was identified as an attractive acquisition target – is a premier company with good brands and solid market share.”

According to an Eaton press release, the acquisition is expected to increase the capabilities and geographic breadth of the combined company’s power management portfolio and electrical business.

“We are extremely pleased to become part of Eaton’s global electrical business,” said Kirk Hachigian, Cooper’s chairman and CEO. “This combination creates endless opportunities to accelerate growth and serve our global customers through combining technology, distribution, penetrating important vertical industries and entering new emerging markets. The two companies are a perfect fit in every respect.”

Founded in 1833, Cooper is a leading supplier of electrical equipment with a wide range of electrical products including electrical protection, power transmission and distribution along with lighting and wiring components. This suite of electrical products enhances customer energy efficiency and safety across a number of end markets globally.

In business since 1911, Cleveland-based Eaton is a global power management company. Its electrical business is a global leader in power distribution, power quality, control and automation, power monitoring, and energy management products and services. Eaton addresses critical power management challenges through its electrical, aerospace, hydraulics, and vehicle businesses.

The transaction is expected to close during the second half of 2012 and the new company, Eaton Global Corporation Plc, will be incorporated in Ireland. The combined company would have had historical 2011 revenues of $21.5 billion and will further remove Eaton Corporation from its roots in auto parts manufacturing and into the electrical equipment industry.

Lustgarten expects a positive impact for electrical distributors, based mainly on the fact that Cooper relies on distribution more heavily than Eaton currently does. The latter is more global in nature, he says, noting that Eaton’s presence in more than 150 countries worldwide won’t take away from the combined firm’s growth in the North American market in the near future. Nor will it lessen the new company’s dependence on distribution. “As this merger finalizes and as the new company expands its product offerings,” says Lustgarten, “its dependence on distributors will increase.”