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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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