Cooper Industry Case Analysis

Cooper Industry is an engines and compressors maker with a history more than 150 years. It had been a small company but with good reputation until 1960. In 1960, Cooper expanded its business by acquiring other manufacturing company. It had a famous process call “cooperization” which brought up with many highly efficient, profitable, and competitive businesses. In 1989, Cooper was considering more acquisitions. It first won the bidding with a $21-a-share tender offer and purchased the Champion. It also considered a $700 million bid for Cameron Iron Works. The strategic issue in this case would be whether or not Cooper should complete the purchasing even with a high financial risk and profound operational and organizational ramification.
Fist let’s use Porter’s Five Forces to analyze Cooper Industry.
 Bargaining power of new entrants Level: Medium
Cooper tried to fulfill their goals of growth and diversification through acquisitions, and they did success. The diversification allowed Cooper to do the business in many different industries. For example, Cooper began the diversification in 1967 when it acquired the Lufkin Rule Company- a hand tool business. After that, it acquired two more hand tool business companies in 1968 and 1970. Although there were competitors in all the industries that Cooper diversified into, the operation strategy makes Cooper have a stable market shares in different industries.
 Bargaining power of substitutes. Level: Medium Low
Cooper actually had a pretty wide range of product market, which is the result of their acquisition. There will be even less substitution if Cooper focus on their business of making engines and compressors to propel natural gas through pipelines. Later, with a wider products market, Cooper can definitely decrease the power of their substitutes.
 Bargaining power of supplier Level: Medium
The process of acquisition made Cooper a partly self-supply business. For example, Cooper bought Colorado Fuel& Iron, to become a specialty supplier to Lufkin. Lufkin would have only one supplier when CF&L stopped production. And Cooper bought their equipment and moved the operations to a newly acquired plant.
 Bargaining power of buyer Level: Low
Cooper has become a broadly diversified manufacturer of electrical and general industrial products, and energy related machinery and equipment in 1988. We can say that Cooper had a dominated place in 3 distinct businesses. Therefore, the buyers had low bargaining power since there is high product differentiation cost. It is also hard to force up the price since there is not many competitors who can challenge Cooper.
 Intensity of rivalry among competitors Level: Low
Cooper had diversified into businesses of electrical and electronic, commercial and industrial, compression, drilling and energy equipment. It had revenue of $4.3 million and over 46,000 employees. The domination of market makes the intensity of rivalry among competitors relatively low.
Recommendation: Cooper has enough experience in acquiring other business. Although Champion was suffering a loss in 1988, the fail was all due to the wrong strategy. Champion has a worldwide brand name and was market leader in spark plugs and wipers, it is important that 35% of their sales were overseas, while 85% of sales of Cooper were in North America. I’ll recommend that there will be more benefit if Cooper acquires the Champion.
Action: The most risk of acquiring Champion and Cameron Iron Works would be the financial issue. Champion would still have an operation margin in its Asian-Africa and European divisions. After acquisition, Cooper should first make sure that Champion’s oversea market would not be affected. Then a accounting system should be invented to adjust the book of Champion in North America. At the same time, start focus on manufacturing spark plugs and wipers, because in which Champion had good reputation and also it is the main revenue source.