Eaton Corp., the power and control systems giant, announced Monday that it would acquire Cooper Industries, a powerhouse in electric grid gear, catapulting the 90-year-old Eaton into a new class of smart grid competition.
Terms of the transaction announced Monday set a value of $72 per share of Cooper stock in cash and shares in the new company, for an equity value of $11.8 billion, one of the biggest M&A deals of the year so far. Eaton has secured a $6.75 billion bridge financing commitment from Morgan Stanley and Citibank to finance the cash portion of the acquisition.
The combined companies had a collective $21.5 billion in 2011 revenues, according to Monday's statement. GTM Research analyst Ben Kellison estimates the combined companies will rank sixth in smart grid-related revenues amongst grid and power giants like Siemens, Schneider Electric, General Electric, Alstom and ABB/Ventyx.
The deal, to close in the second half of 2012, will create a company headquartered in Ireland and tentatively titled “Eaton Global Corporation Plc or a variant thereof ('New Eaton'),” according to Monday’s announcement. Eaton’s CEO and chairman Alexander Cutler will lead it.
Cleveland, Ohio-based Eaton reported 2011 sales of $16 billion globally, and its portfolio includes data center and building controls, vehicle drivetrains, power distribution and control gear and hydraulics and pneumatic systems for commercial and military use. It's a major player in plug-in vehicle charging, where it faces a familar set of competitors like Siemens, Schneider, GE and ABB.
On the smart grid side, it has everything from substation and distribution automation turnkey systems to its smart home and smart building products and services, which put it in competition with the likes of Honeywell and Johnson Controls. Cooper offers Eaton “diversified component brands, global reach and international distribution” to expand its reach, Cutler said in Monday’s announcement.
The two expected the deal to increase operating earnings by share by 35 cents in 2014 and 45 cents in 2015, as well as create about $535 million in “annual synergies” by 2016 via business consolidation. Shares of Cooper (CBE) had jumped 26 percent to $70.39 in Monday morning trading, while Eaton (ETN) shares were up slightly, less than 1 percent.
Of course, any measure of Eaton and Cooper's new clout in the market should be judged against the future acquisitions amongst its chief competitors. ABB has earmarked $9 billion to $18 billion for acquisitions over the next five years, and most recently bought North American power equipment giant Thomas & Betts for $3.9 billion. GE and Schneider have spent billions on acquisitions, and Siemens has upped its ante with its purchase of eMeter in December and RuggedCom in February.