CLEVELAND, Mon May 21, 2012 – Diversified industrial manufacturer Eaton Corp. agreed to buy electrical equipment maker Cooper Industries Plc for $11.8 billion in cash and stock, its biggest-ever acquisition, a move that will lower Eaton’s taxes by shifting its incorporation to Ireland.
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.
Cooper shares were up 27 percent at $70.89 in morning trading, the day’s biggest gainer on the New York Stock Exchange, while Eaton stock was up 1.1 percent at $42.88.
The Eton-Cooper agreement would be the biggest deal of several mergers announced on Monday. Analysts said this was one way for companies to grow in a sluggish global economy.
“It drives the point home that acquisitions are an increasingly important growth avenue in a slow-growth world,” said analyst Matt Collins of Edward Jones.
“Record low interest rates and solid balance sheets make it that much easier to get deals done. Overall I wouldn’t say that it necessarily means anything strategically for other companies in the space, other than more of the same consolidation is likely,” Collins said.
The pricing appears to be fair or “slightly expensive,” valuing Cooper at 11.5 times projected earnings, JP Morgan analyst Ann Duignan said.
The deal will allow Eaton to better participate in an electrical market that is expected to benefit from investment to modernize aging power grids in both mature and developing economies. It will also allow Eaton to expand into lighting and lighting controls, a market poised to benefit from a rebound in commercial construction.
Eaton also cited expected growth from the oil and gas industry, which both Cooper and Eaton serve.