Why Cooper Industries Shares Jumped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of electronic component maker Cooper Industries (NYS: CBE) jumped 26% today after announcing it was being acquired by Eaton (NYS: ETN) .

So what: In the announced deal, Cooper shareholders will get $39.15 per share in cash and 0.77479 share of Eaton stock, worth about $72 per share in total. The buyout is expected to add $0.65 per share in earnings to Eaton in 2014 and $0.75 per share in 2015.


Now what: For shareholders in Cooper, this could be a good time to cash out, reducing the risk of a deal not going through. For Eaton, the acquisition comes at a high cost and makes the stock look more expensive than the current 10.6 trailing P/E ratio. It is now less of a value play than it used to be.

Deal-making in the space by Eaton and ABB (NYS: ABB) has also driven up the price of competitor Hubbell (NYS: HUB.B) today as the market speculates that its business may be undervalued as well. In my view, this is a nice time to cash out on high stock prices because acquisitions of this size don't have a long history of adding shareholder value.

Interested in more info on Cooper Industries? Add it to your watchlist byclicking here.

At the time this article was published Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Motley Fool newsletter services have recommended buying shares of ABB. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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