Eaton Goes Big (ETN, CBE, ITW, JCI, PH)

Eaton Corp. (NYSE: ETN), a diversified industrial company that is best known for its power management equipment, has announced that it is acquiring Ireland-based Cooper Industries (NYSE: CBE) for a total of about $11.8 billion in cash and stock. Cooper shareholders will receive total compensation of $72/share, of which $39.15 is cash and the remainder is 0.77479 shares of Eaton stock for each share of Cooper stock. The purchase price represents a premium of 29% to Friday’s closing price of Cooper shares, and is above Cooper’s 52-week high.

The acquisition will result in the formation of a new company to be called (something like) Eaton Global Corp. plc and will be based in Ireland. Alexander Cutler, Eaton’s current CEO and Chairman, will head the new company. The deal is expected to close in the second half of 2012, pending shareholder and regulatory approvals.

Current Eaton shareholders will receive one share of the new company’s stock for every share of Eaton they now own. When the deal is completed, Eaton’s current shareholders will own about 73% of the new company. The stock is expected to continue trading on the NYSE under the ‘ETN’ stock symbol.

The combined company will have a market cap of around $25 billion, about the same size as Illinois Tool Works Inc. (NYSE: ITW) and slightly larger than Johnson Controls Inc. (NYSE: JCI). Another electrical equipment maker, Parker Hannifin Corp. (NYSE: PH), is about half the size of the combined Eaton-Cooper entity.

Shares of Cooper are up 25% in the first half-hour of trading this morning, at $69.80 in a 52-week range of $41.15-$71.37. Eaton stock is down about -0.6% at $42.13 in a 52-week range of $33.09-$53.23.

Paul Ausick