Eyeing Global Expansion, Eaton Agrees to Acquire Cooper Industries for $11.8 Billion

Eaton Corp.’s blockbuster move to acquire Cooper Industries for $11.8 billion took the industry by surprise last week, but the tight fit between the companies, with very little overlap in product lines, shows the logic of the deal.

In acquiring Cooper, which is incorporated in Ireland but is run from Houston, Cleveland-based Eaton will significantly increase the capabilities and geographic breadth of its power management portfolio and its electrical business overall. Cooper’s experience in international markets and its strong position in the oil and gas business through its Crouse-Hinds brand are key benefits for Eaton.

Eaton also will gain some tax advantages by incorporating the new combined company, called Eaton Global Corporation Plc, in Ireland, though sources say Eaton’s top management will continue directing the business from Eaton’s new 580,000 square foot headquarters campus in Beachwood, Ohio, outside Cleveland, and to oversee the U.S. electrical market from its Pittsburgh offices. In addition to its corporate offices in Houston, Cooper runs its lighting business out of Atlanta. There was no word at press time whether those offices would change.

The overlap between the companies’ electrical product offerings is actually pretty modest for two such large electrical manufacturers. Cooper has seven operating divisions — B-Line, Bussmann, Crouse-Hinds, Lighting, Safety, Power Systems and Wiring Devices — that produce electrical protection, power transmission and distribution, lighting and wiring components. Within these groups are dozens of marquee brands, including CEAG explosion-proof electrical equipment, Halo and Metalux lighting fixtures and Kyle and McGraw-Edison power systems products.

Eaton integrated the branding of its various electrical acquisitions several years ago under the Eaton Electrical brand. Its electrical core rests on what was once Cutler-Hammer and parts of the old Westinghouse business, as well as E.A. Pederson switchgear, Klockner-Moeller industrial controls and many others. Its electrical products include circuit breakers, switchgear, UPS systems, power distribution units, panelboards, loadcenters, motor controls, meters, sensors, relays and inverters.

The impact in the U.S. electrical industry is expected to be fairly modest. Distributors who carry the lines said they expect the companies to continue with their established market strategies, especially in the short term, since quite a number of Eaton distributors carry Cooper rivals such as Appleton and quite a number of Cooper distributors carry distribution and control lines such as Square D that compete with Eaton.

Bill Elliott, president of Elliott Electric Supply, Nacogdoches, Texas, which has long-time relationships with both Eaton and Cooper, sees lots of good in combining the two. “They fit like a hand in a glove, really,” said Elliott.

Eaton’s two electrical divisions — Electrical Americas and Electrical Rest of World — produced sales of over $7 billion in 2011, according to the company’s annual report, accounting for almost 45% of total company sales. Eaton also has large divisions serving the automotive and truck, hydraulics and aerospace markets.

Cooper Industries, which has been entirely electrical since about 2000, reported revenues of $5.41 billion in 2011, meaning the electrical businesses of the new Eaton Global accounted for sales of more than $12 billion in 2011. The group overall had combined 2011 sales of $21.5 billion and earnings (EBITDA) of $3.1 billion. This puts Eaton’s size closer to that of global rivals such as Schneider Electric, which had 2011 sales of about $28 billion in 2011.

Cooper has production facilities in 23 countries and about 40% of its sales come from markets outside the U.S., another bonus for Eaton.