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  • January 2021 (Revised June 2021)
  • Supplement
  • HBS Case Collection

Eaton Corporation: Portfolio Transformation and The Cost of Capital (Abridged)

By: Benjamin C. Esty, E. Scott Mayfield and Daniel Fisher
  • Format:Electronic
  • | Language:English
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Abstract

In 2000, Eaton Corporation was a broadly diversified industrial conglomerate. But its strategy was evolving and its focus was narrowing around “power management” and more recently on “intelligent power,” the use of digitally enabled products and services designed to enhance efficiency and reliability. To implement this transition, Eaton had acquired more than 70 companies and divested another 50. Such active portfolio management required Eaton to regularly assess the prospects of each business unit—the profit and growth potential—and to explore opportunities to enhance its capabilities through acquisitions. In January 2020, Eaton got an offer from Danfoss, a Danish conglomerate, to buy its hydraulics business for $3.3 billion. Recently appointed CEO Craig Arnold must decide whether this deal makes sense strategically and financially. In particular, he must decide if $3.3 billion is a fair price for the firm’s hydraulics business. This abridged version is shorter than the original version (HBS Case #221-006) and does not contain the appendix that explains and derives the formulas for the WACC using the capital asset pricing model (CAPM).

Keywords

Mergers and Acquisitions; Business Conglomerates; Business Divisions; Cost of Capital; Corporate Finance; Value; Valuation; Industrial Products Industry; United States; Denmark; Republic of Ireland

Citation

Esty, Benjamin C., E. Scott Mayfield, and Daniel Fisher. "Eaton Corporation: Portfolio Transformation and The Cost of Capital (Abridged)." Harvard Business School Spreadsheet Supplement 221-708, January 2021. (Revised June 2021.)
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About The Authors

Benjamin C. Esty

Finance
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E. Scott Mayfield

Finance
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Related Work

    • January 2021 (Revised June 2021)
    • Faculty Research

    Eaton Corporation: Portfolio Transformation and The Cost of Capital (Abridged)

    By: Benjamin C. Esty, E. Scott Mayfield and Daniel Fisher
Related Work
  • Eaton Corporation: Portfolio Transformation and The Cost of Capital (Abridged) By: Benjamin C. Esty, E. Scott Mayfield and Daniel Fisher
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