Eaton Buys Cooper, Forms New Entity

Eaton Corporation ( ETN - Analyst Report ) is set to acquire Irish electrical equipment supplier Cooper Industries plc. ( ) . Both the companies have already signed a definitive agreement related to the proposed acquisition. The total equity value of this transaction is estimated at $11.8 billion.

Post regulatory, shareholders and other approvals, the new organization will be named Eaton Global Corporation Plc and will be based in Ireland. The shares of the new entity will be registered with the U.S. Securities and Exchange Commission and trade under the symbol of ETN on the New York Stock Exchange.

The acquisition will be financed with a combination of cash, debt and equity. As of March 31, 2012, Eaton had a cash balance of $367 million. Also, the company has already secured $6.75 billion fully underwritten bridge financing commitments from several multinational institutions to finance a part of this acquisition.

Per the agreement, the Eaton shareholders will own 73% of the combined entity while Cooper shareholders will enjoy 27% ownership. The shareholders of Cooper are expected to receive $72.00 per share based on the closing price of Eaton common stock as of May 18, 2012. This includes a cash consideration of $39.15 per share and 0.77479 shares of the newly formed company for each Cooper share.

Eaton expects this transaction to create cost synergies of $535 million by 2016. The acquisition is expected to be accretive to the company’s operating earnings by 35 cents in 2014 and by 45 cents in 2015. Excluding non-cash expense associated with amortization of intangible assets owing to purchase accounting, the acquisition is expected to increase operating earnings per share by 65 cents and 75 cents in 2014 and 2015, respectively.

Eaton’s frequent acquisition programs indicate that the company strongly relies on inorganic growth. Within the first few months of 2012, the company has already acquired South Korean track drive motors manufacturer Jeil Hydraulics Co., Ltd. and Polimer Kauçuk Sanayi ve Pazarlama A.S., a Turkish hydraulic and industrial hose producer. As a result of the acquisitions, the company’s operating profit in first quarter of 2012 increased to $544 million.

The newly formed entity, Eaton Global Corporation Plc will create a wide array of products including lighting, power grids, and hydraulic and transmission systems for aerospace and defense companies.

Cleveland, Ohio-based Eaton Corporation provides an array of products: powertrain, truck and automotive systems, electrical components and systems, hydraulics and pneumatic systems for commercial and military use.

Eaton Corporation currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.