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Eaton Corp. has agreed to purchase Cooper Industries PLC in a cash-and-stock deal valued at about $11.46 billion that is designed to expand its reach in the global electrical power and distribution industry.
The deal announced Monday would create a company that manufactures products for a wide range of electrical uses, from power grids and lighting to electrical, hydraulic and transmission systems for vehicles, the aerospace industry and the military.
The new company, likely to be called Eaton Global Corp. PLC, which will be incorporated in Ireland and headed by Eaton Chairman and CEO Alexander Cutler. The deal needs the approval of shareholders of both companies and the Irish High Court. It is expected to close in the second half of the year.
Cutler told analysts during a conference call that the combination of the two companies will create a business well-positioned for growth in managing power for customers around the world.
Under terms of the deal, each Cooper stockholder will receive $39.15 in cash and 0.77479 of a share in the newly created company. That combination is worth $72 per share based on Eaton's closing share price of $42.40 on Friday. It would be a premium of nearly 29 percent over Cooper's closing stock price on Friday.
Eaton stockholders will receive one share of the new company for each Eaton share they own.
Eaton stockholders are expected to own about 73 percent of the combined company, with Cooper stockholders owning the rest. The deal will be taxable to both Eaton and Cooper shareholders, for U.S. federal income tax purposes.
Cooper currently has approximately 159.1 million outstanding shares, according to FactSet. The companies value the total deal at about $11.8 billion.
Excluding a non-cash expense, the buyout is anticipated to add to operating earnings by 65 cents per share in 2014 and by 75 cents per share in 2015.
The companies expect to achieve $375 million of operational synergies -- a term that refers to estimated cost savings and added revenue resulting from the combination. Cutler said that as a result of increased flexibility and global cash management, there will be a tax benefit of about $160 million per year. He declined to comment on a specific rate or projection.
Eaton spokesman Gary Klasen said they would not be able to discuss any impact on jobs until the transaction closed and officials had a chance to evaluate the new company's needs. He said operations in Cleveland would remain intact.
Cooper offers a variety of electrical products including electrical protection, power transmission and distribution, lighting and wiring components. Eaton, which is based in Cleveland, makes electrical and hydraulic components, systems and services. It also makes aerospace fueling, hydraulic and pneumatic systems for commercial and military use as well as vehicle drivetrain and powertrain systems.
The deal needs the approval of a majority of Cooper shareholders and of the Irish High Court. Eaton shareholders with two-thirds of the company's outstanding voting stock also must also approve the buyout.
The combined company's shares are expected to trade on the New York Stock Exchange under the "ETN" ticker symbol now used by Eaton Corp.
In late afternoon trading, shares of Cooper rose $14.02, or 25.1 percent, to $69.85 after rising to a new high of $71.37 earlier in the session. Shares of Eaton fell 34 cents to $42.07.
After the news was announced, Moody's Investors Service placed the long-term debt ratings of Eaton under review for possible downgrade. It also placed the debt ratings of Cooper US Inc., a principal debt issuer in the Cooper group under review for possible down grade.
The transaction will be financed with cash, debt and equity. Eaton says it has secured a $6.75 billion bridge financing commitment from Morgan Stanley Bank, Morgan Stanley Senior Funding Inc. and Citibank to fund the cash portion of the buyout.