WHAT’S NEXT?
Case Study on Diversification at Cooper
By:
DIVERSIFICATION AT COOPER
 Strategic Challenge: Buy Champion or
Cameron or both to reach sustainable
competitive advantage?
 Solutions:
 Buy both now
 Internal Capabilities  VRIO
 External Opportunities  S-C-P
 Develop international diversification
strategy
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GENERAL ENVIRONMENT
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Business Cycles
Operating Inefficiencies
Increased Competition
Need for Consolidation
Solution: Cooperization
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LOCAL ENVIRONMENT
 Growth from Diversification into:
 Related industries: 1967-1970s
 Unrelated industries: 1980s
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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 ANALYSIS
Intensity of
Rivalry (Many
Inefficient
Competitors)
High Entry
Barriers
Substitutes
(Cheaper
Products)
Cooper
Industries
Buyers
(No Power)
Suppliers
(No Power)
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LOSSES & GAINS
Losses
 Dresser and Carrier: compressors for
petrochemical applications
 Black & Decker: Electric power tools
Gains
 Hand Tools: hundreds of small companies
 Gardner-Denver: Big but inefficient
 Crouse-Hinds: Big and Efficient
Diversification = Additions & Subtractions
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INTERNAL ANALYSIS
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Strengths
Clear Acquisition Strategies
Management Development & Planning
(MD&P)
Squeezing & Adding Value
Organizational structure
Weaknesses
Increased Debt
Cooper is good at “digesting”
acquisitions!
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HOW COOPER CREATES VALUE
 Cash Flow is KING!
 DYNAMIC organizational structure changes
with each acquisition
 Strategic Planning is bottom-up
 MD&P System
 Manufacturing Services Group
These (and more) are difficult for
competitors to imitate and are the
sources of Cooper’s sustainable
competitive advantage.
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OPPORTUNITIES & STRENGTHS
 Grow Business
Segments through
More Acquisitions
 Champion
 Cameron (main
competitor)
 More Power in the Oil
& Gas Industry
 Develop foreign
markets via Champion
 Strategic Fit
 Champion 
Commercial &
Industrial
 Iron Works 
Compression &
Energy
 Management Expertise
Cooper has a proven track record of buying
companies, but then…
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THREATS & WEAKNESSES
 Champion
 Poor diversification
 Losses and cost of
liabilities
 Cameron
 Anti-trust issues
 Serious growth
potential?
 Higher debt after
acquisition: 5560% of capital
 Can it digest two
big “meals” at the
same time?
Cooper must be able to manage these
Threats & 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 fit
with Cooper’s capabilities and intentions
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WHAT CAN COOPER DO?
 Increase E&E Segment Sales and
Expand Overseas Market by buying
Champion
 Dominate industry sector by buying
#1 competitor Cameron
 Hit 2 birds with one stone
 Explore International Diversification
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STRATEGIC OPTIONS
 Buy
 Which one? Champion, Cameron, both?
 Status Quo
 Do nothing
 Prepare the company for other buying
opportunities
 Wait until purchase price goes lower or
Cooper stock price goes higher
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WHAT COOPER SHOULD DO
BUY BOTH COMPANIES NOW!
 Doable
 Exploit Profit Opportunities to
Offset Losses
 Grow two segments together
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ACTION PLAN
 Conduct Due Diligence on Champion and
Cameron & look for Value (e.g.):
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Sell Champion’s executive planes
Close Champion’s losing businesses
Downsize Cameron’s Sales Force
Integrate Cooper’s and Cameron’s R&D
 Make sure No Anti-Trust Issues from
Cameron purchase
 Check liabilities from closures
 Meet CEOs of companies; make offer ASAP
 Study International Diversification Strategy
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