Eaton Corp. 'A-/A-2' Ratings Affirmed; Outlook Revised To Negative On News Of Cooper Acquisition Plan
- U.S. based diversified industrial company Eaton Corp. has announced its plans to acquire electrical equipment maker Cooper Industries PLC for about $11.8 billion in cash, debt, and an equity contribution.
- We are affirming our ratings on Eaton Corp., including the 'A-' corporate credit rating, and revising the outlook to negative.
- We believe that credit metrics will be stretched for the rating following the partly debt-financed acquisition, and we could lower the rating if they do not improve.
NEW YORK (Standard & Poor's) May 21, 2012--Standard & Poor's Ratings Services said today that it affirmed its ratings, on Cleveland-based Eaton Corp., including the 'A-' long-term corporate credit and 'A-2' short-term ratings. At the same time, we revised the outlook to negative from stable. "The affirmation reflects our expectation that Eaton Corp.'s operating prospects are likely to remain favorable and that its planned contribution of equity to fund a considerable portion of the Cooper acquisition is sufficient to maintain the rating," said Standard & Poor's credit analyst John Sico. "However, the outlook revision to negative recognizes the potential for a lower rating if weak market conditions, deterioration in operating performance, or a less conservative financial policy delays expected improvements," he continued. Cooper represents a good strategic fit for Eaton because it expands the company's product offerings, presents synergy opportunities, and adds a business that carries good operating margins (before depreciation and amortization) in the mid-teen percent area. Eaton is a globally diversified power management company, with several large segments that cover the gamut of early-, mid-, and late-cycle businesses. The company expects the Cooper acquisition to close by the fall of this year. Eaton Corp.'s credit quality measures are currently somewhat subpar. Eaton is acquisitive and demonstrates a growth strategy that can stretch credit metrics. The partly debt-financed acquisition of Cooper will weaken credit measures further on the close of the acquisition. Still, these measures should recover to appropriate levels in 2014 as the company pays down debt and benefits from anticipated economic expansion and an improved cost structure due largely to cost cuts it has taken and plans to take over the next several years. RELATED CRITERIA AND RESEARCH
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| Primary Credit Analyst: | John R Sico, New York (1) 212-438-7862; john_sico@standardandpoors.com |
| Secondary Contact: | Dan Picciotto, CFA, New York (1) 212-438-7894; dan_picciotto@standardandpoors.com |
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