The CEO John McDonough oversaw for Newell Company during 1998 oversaw two acquisitions. First was the acquisition of Calphalon and second was the acquisition of Rubbermaid. Calphalon was a privately held manufacturer of anodized aluminum cookware whereas Rubbermaid was a manufacturer of plastic consumer and commercial products. It was decided that the new company would be named as Newell Rubbermaid and would have a greater global presence and a broader product offering.
These acquisitions were viewed as part of the next Newell’s strategy and McDonough identified a need to develop and buy stronger brands because of increasing market power of Newell’s primary customers. Their customers were big store like Wal-Mart, K Mart etc. Wal Mart alone accounted 15% of the sales for Newell. They key strategic perspective of Newell was to focus on the profitability perspective not on sales perspectives.
Newell followed an aggressive marketing strategy by acquiring 30 businesses in the next 20 years, to act upon it they focused on those businesses which were relatively weak, have obsolete technology, lessened production and below average production, efficiency and effectiveness. McDonough thought that the company had to grow and also said that the research showed that companies with over $10 billion in market capitalization commanded higher price/earnings multiples and that it was important for Newell to reach this level of optimization.
1. Does the Newell have a successful corporate-level strategy? Does the company add value to the businesses within its portfolio? If so, how? Yes, Newell have a successful corporate level strategy and it does add value to the business within its portfolio. Newell company corporate strategy was primarily based on the rationale that the company has to continue to grow to the extent that it could cross the threshold of over $10 billion in market capitalization so that it could command higher price/earnings multiples in the market.
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To achieve this goal Newell Company follows the strategy to make a high-volume/ low cost product and target towards large retail institutions, the larger mass retailers. “Newell is a manufacturer and full-service marketer of consumer products serving the needs of volume retailers”. (Mission statement) Besides just sticking to the parent company, Newell management adopted some aggressive strategy and started acquiring related business to its business portfolio. By doing so, the executives thought to leverage and capitalize the relationships of the target companies in the market in order to sell other items as well.
The broader corporate strategy besides these acquisitions was to add value to its already powerful multiproduct offering and make Newell a more important supplier for the world largest retailers. The company acquired companies to round out its existing product lines and consolidate industry capacity to achieve efficiency rather than pricing power. The acquisitions also provide Newell with an asset of shelf space at different retailers. The two pronged strategy however does not provide a solid base for a continual growth pattern.
Besides on focusing on just volume retailers the company starts acquiring businesses that supply to small independent customer. However as the basic strategy of Newell promotes multi brand offering the aggressive strategy of acquiring related businesses that volume retailers would keep on their shelves year in and year out somehow add value to its business portfolio as long as the company stick to its major strategy of serving mass retail customers rather than small independent retailers. 2. What are the company’s distinctive resources? Newell has a heritage of resource-based culture.
... the Newell corporate office strategies. Overarching company goals were also aligned with its business strategies and acquisitions, and this was beneficial for the various companies it acquired ... Home Depot, Calphalon’s products were sold to high end retailers such as Williams Sonoma and Macy’s. Calphalon’s product ...
Since its inception in 1902, Newell has grown from a small metallic curtain rods supplier to a giant consumer and commercial products with a very diverse and decorated portfolio comprising of renowned brands across globe. From the time of company president Dan Ferguson, who formulated the core corporate strategy and laid out the strategic focus of the company, Newell has done business based on one simple yet defining philosophy “build on what we do best”. Their core competency laid in high volume, low cost production and ability to establish
a strong bond with large scale retailers. Carrying forward this philosophy, Newell’s distinctive resources comprise of its strong HRM, particularly senior management, extremely focused acquisition approach and its robust alignment and restructuring process. Newell is blessed with a dynamic management that has adopted a foresighted and holistic approach. The management has held close the philosophy of building a strong empire around ‘brands that matter’ while sticking to its core competencies to sustain a global competitive advantage.
From the time the company realized its vision to produce high volume/ low cost products that were recognized globally, it ensured that all the companies it acquired over the years were streamlined according to the company’s fundamental, core strategy. The management played an instrumental role by cutting down the costs and increasing profit margins of the acquired companies effectively. This process called ‘Newellization’ took place within the short period of 6-18 months because of the commendable efforts of the management.
All the companies taken over by Newell were allotted presidents and controllers brought in from outside of acquired firms in order to align the processes and administration with that of Newell’s. Second distinctive resource is Newell’s acquisition strategy- smooth and focused. Newell thrived by acquiring 30 major businesses in just 20 years, bringing under its banner major brands like Calphalon, Black and Decker, Rubbermaid, Kirsch and so forth.
In October 1998, Newell Company was considering a merger with Rubbermaid Incorporated to form a new company, Newell Rubbermaid Incorporated. The agreement would be through a tax-free exchange of shares valued at $5.8 billion. Newell had revenues of $3.7 billion in 1998 across three major product groupings: Hardware and Home Furnishings, Office Products, and Housewares. Rubbermaid is a renowned ...
The company had a well defined mission; to produce and supply volume merchandise to merchandise retailers, and for this purpose, it only targeted those companies that could help pave Newell’s presence in large and reputed retailers. It intended on acquiring companies that had fundamental similarities with Newell but had low operational efficiency and low profitability so that after acquisition, the performance could be easily juxtaposed via financial statements analysis and critical areas identified.
Also, Newell only took over companies that added to its prestige and did not dangle its strategic focus. For instance, Newell divested any business that did not have a strategic fit with Newell’s main focus. When Wm. E. Wright, acquired in 1985 by Newell, lost share with large scale retailers and moved to the individual retailers segment, despite the solid performance of the former, the latter divested and sold the company to better utilize the resources on alternative businesses that connected Newell to mass retail customers. The last distinctive resource identified is the
Newellization process itself carried out by the company. As mentioned above, Newell was able to streamline the practices and major functional activities like administration, accounting etc as well as cut costs by identifying flaws in the company’s value chain, quite successfully. Usually the process took about 18 months but for most cases, it was able to undertake this challenging job within 6 months. 3. Does the acquisition of Calphalon make sense? Calphalon was established in 1963, indulged in production of high quality aluminum cookware.
It was a privately held company. It entered the food industry in 1973. It was in premium product line; produced six major products. In 1987, its sales went very high; in 15 years it rose from $6million to $120 million. But its profit margin declined. In 1997, Calphalon failed to keep pace with the time, a younger fashion oriented age originated which the company did not follow. Its distribution channel was the main reason. Calphalon had two strengths; (i) pull strategy of sales process and (ii) strong customer relationship.
Newell was attracted towards it due to its success in the company and potential to grow further, its declining profit margin was the major reason for the acquisition to take place. History has it, Newell is attracted to companies with lower profit margin; Anchor Hocking can be taken as an example. Its sales equaled to $757 million but had a profit margin of 0. 5%. Newell on the other hand, had a sales of $350 million but a profit margin of 11%. In 1987, Newell did a takeover and applied its Newellization process and was very successful.
... the 1990s was the acquisitions of Calphalon and Rubbermaid. These were both major stepping stones for Newell in that both companies will bring greater brand ... power. By 1997, three mass retailer chains controlled 80% of the discount retailer market. This allowed retailers to obtain significant leverage over price ...
The acquisition took place in 1998 when Calphalon was already in a contract for manufacture of kitchen essentials. The acquisition of Calphalon does not make sense due to the following reasons: The mission statement of Newell “Newell is a manufacturer and full-service marketer of consumer products serving the needs of volume purchasers” describes its focus on mass retailers rather than small independent retailers. The acquisition of Calphalon does not make sense as it was operating on micro level by concentrating on final consumers as well as retailers and this was not compatible with the Newell strategy.
Newell’s goal was to achieve efficiency by enjoying economies of scale as it was targeting to mass retailers, Calphalon management however never focused at the volume opportunity but at the opportunities the relationship can deliver to the overall objective of the brand. Calphalon was facing strong competition in the market from some solid brands and was facing the pressure of price wars from them which makes its position quite risky. Newell on the contrary was a risk averse company and avoid indulging in price wars. 4. Was the Rubbermaid acquisition a good move for Newell?
Acquisition criteria of Newell’s Rubbermaid fits within this company because this has strong brand equity with significant shelf space at mass retailers but its operations were inefficient. The rising costs with service problems have diminished its (Rubbermaid) potential profits. By controlling Rubbermaid costs Newell can improve Rubbermaid deteriorating position. The acquisition costs looks to be overvalued according to financial forecasts post-“Newellization”, The net present value of future cash flows of Rubbermaid at time of acquisition less than half of the actual acquisition price.
This makes any kind of potential value creation irrelevant since Newell would need to overcome the market premium in terms of either future savings or increased growth. The degree to which this acquisition adds value depends on Newell’s ability to absorb Rubbermaid into its existing corporate structure. The sheer size of Rubbermaid (75% of Newell’s revenue in 1997) points to a longer “Newellization” process than the standard 6 month period. If the “Newellization” process drags out, Newell will be forced to invest more of its time and resources into integrating Rubbermaid.
... /5p. 1c “Newell Rubbermaid Completes Sale of Businesses.” Gourmet Retailer, June 2004, Vol.25 ... Due to the large number of acquisitions, Newell managers’ average tenure for any ... diversity of Newell’s products include names such as Rubbermaid household products; Calphalon cookware; Rolodex ... when you make the right decision and move forward.” “Newell Rubbermaid Inc. ...
This may leave less time to focus on new acquisitions. There is also a strong chance that absorbing Rubbermaid is the incorrect approach to integration. Newell will need to work with the majority Rubbermaid’s existing workforce and management team, there are simply too many to replace. In addition, Rubbermaid’s excellence in new product development adds value to Newell. If Newell were to absorb Rubbermaid, it could risk alienating the new work force and destroy the processes that promote new product development.