Cooper Industries plc (CBE) and Danaher Corporation (DHR) announced the formation of a joint venture combining Cooper’s Tools business with certain tools businesses from Danaher Corporation’s Tools and Components segment.
Cooper and Danaher each will own a 50% stake in the new company. This joint venture will combine two highly complementary tools businesses with well known brands, experienced management teams and global customer bases.
Danaher and Cooper will have equal representation on the joint venture’s Board of Directors and the transaction is expected to close after securing the necessary regulatory approvals.
This JV will create a focused, global tools business with revenues in excess of $1.2 billion and significant sales in North America, South America, Europe, China, and Australia, a global manufacturing footprint, a more comprehensive product offering and a significantly improved cost position.
Cooper has several opportunities for additional growth in the current year, including stimulus spending, restructuring benefits and accretive capital allocation in the form of share repurchases or mergers and acquisitions. If Congress decides to retroactively reverse tax inversion legislation, CBE’s tax rate would be higher than expected, which will affect earnings. While earnings risk still remains, we believe that the previous year marked the bottom for the earnings cycle.
CBE will likely realize an outsized portion of its growth from developing markets in China, the Middle East and Mexico. Industrial, utility and energy markets are expected to rapidly expand, and industrializing economies will help offset some of the declines in already developed regions. This will eventually help support higher growth rates for the current year.
Pressures in commercial markets will continue to be a drag on earnings throughout the current year; however, numerous items such as lighting retrofit, government spending, energy efficiency projects and stimulus will help buffer underlying pressure. Residential markets appear to have bottomed out and should experience modest growth. The company is well positioned to capitalize on the potential for renewed spending on transmission and distribution products as utilities begin to open up their spending again.
Cooper Industries, Ltd. is a global manufacturer, with 2009 revenues of $5.1 billion, approximately 89% of which were from electrical products. Cooper has manufacturing facilities in 23 countries and currently employs approximately 28,200 people.
We currently have a Neutral recommendation on CBE.
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