Eaton agreed to buy Cooper Industries, a maker of electric-distribution equipment, in an $11.8 billion transaction to expand its power-management business and its part in a U.S. housing recovery.
Each Cooper share will be exchanged for $39.15 in cash and 0.77479 Eaton share, according to a statement Monday from Cleveland-based Eaton. That offer is valued at $72 a share based on Eaton’s Friday closing price, 29 percent more than Cooper’s price that day, according to the statement.
The deal is the biggest ever made by Eaton, which employs about 3,000 people in North Carolina. It will allow the company to expand its markets to include providing lighting gear for utilities and commercial buildings, along with boosting residential-construction sales. CEO Sandy Cutler has predicted housing may grow by 25 percent annually in the next couple of years.
“The combined company leverages complementary products, accelerates long-term growth opportunities and increases exposure to high-potential end markets,” Ajay Kejriwal, an FBR Capital Markets analyst in New York, wrote in a note Monday.
Cooper had been the focus of takeover speculation for months. The shares jumped the most in more than two years in September after Jeffrey Sprague, a Vertical Research Partners analyst, suggested that the company would be a good fit with Eaton.
Another bidder for Cooper may surface as European companies seek to expand in the United States, Kejriwal said. Zurich-based ABB’s $3.9 billion purchase of Thomas & Betts this year left Cooper and Hubbell as the only two large independent electrical equipment companies in the United States, he said.
Eaton said the transaction will boost operating earnings by 35 cents a share in 2014, and 45 cents a share in 2015. The deal will lower earnings by 10 cents next year. The combined company will be based in Ireland, where Cooper is now incorporated.
Much of Eaton’s electrical distribution and control equipment is designed, assembled and shipped from its manufacturing locations in Raleigh, Fayetteville and Asheville; it also has a facility in Sumter, S.C.
Eaton’s manufacturing portfolio also includes hydraulic products and parts for trucks and autos. Cooper, which operates from Houston, gets 60 percent of its sales in the United States, Eaton said.
Cutler said Eaton and Cooper have little overlap, allowing expansion into industries such as oil and gas where the stand-alone Eaton had little penetration.
“It’s again this complementary nature of these businesses that form such a hand-in-glove wonderful fit,” Cutler said. “That’s really the driver that excited us so much when we began talking about this.”
The combined companies had 2011 revenue of $21.5 billion and earnings before interest, taxes, depreciation and amortization – a measure of cash flow known as Ebitda – of $3.1 billion, according to Eaton’s statement.
Eaton said its shareholders are expected to own about 73 percent of the combined company, which may be called Eaton Global Corp. The company said the transaction is expected to close in the fall of 2012.
Cost savings are expected to be $535 million, with $160 million of that coming from global cash management and tax benefits related to incorporation in Ireland. Of the savings, $260 million will come from cost cuts and $115 million from “sales synergies.” Eaton expects $200 million of acquisition integration charges, with $165 million of those coming in 2013 and 2014.