Newell Company-The Rubbermaid Opportunity

When performing an internal analysis of Newell Company, a few common denominators of Newell’s businesses can be observed. Newell’s strategy was to acquire companies selling well-branded goods to mass retailers at low profit margins. The after the acquisition of theses companies, they would go through a process known as “Newellization.” The goal of “Newellization” was to align the newly acquired companies with Newell operations, with the end goal of turning profit margin to 10-15% within a period of less than 18 months. The companies targeted typically offered products that had operations similar in nature to Newell existing line of products but also offered growth prospects to develop the company as a whole. This allowed Newell to accomplish an integration of these companies rapidly and help achieve an overall efficiency. All of the businesses target the mass retail market. They target this market by distributing off-the-shelf products through mass-retail channels. This is one of the main reasons the Newell businesses achieved success as their value propositions of shelf space and on-time delivery were incorporated into their strategies. Newell also uses growing through acquisitions as another one of its corporate strategies. This is done by the leveraging of synergies among resources, not products, allowing things to be very consistent throughout each business and the newly acquired firms. I believe the critical corporate resources at Newell that are shared by, or transferred to the businesses are its managers. The “Newellization” process consists of a number of broadly applicable steps including the transfer of experienced Newell mangers into the acquired businesses. This allows for all of the business practices to be regular through all of the businesses without undermining each business’s independence. Newell also has centralized key administrative functions through a very unified data-management system. This also allows the businesses to be consistent in their operational activities, which creates higher efficiency and coordination. Under Newell’s organizational configurations, these shared resources work to create an advantage for the company. Newell also has achieved success because of a few other resources such as the company’s consistent good reputation with national chains, its corporate structure, and its possession of technology that helps fill the needs of the retailers. Newell’s control systems are balanced among the operational and financial methods. Performance can then be regulated in terms of both internal and external factors affecting the businesses. For example, managers receive a bonus for meeting goals that are related to the monthly reviews of multiple operating variables and financial measures such as growth. By having this rewards system in place, strategic control is established which successfully creates a corporate advantage for Newell that is steered by its value adding vision. Leading up to the proposed acquisition of Rubbermaid, Newell’s corporate strategy of growth by acquisition did create a competitive advantage based on fact that the acquisitions were very thought through and the type of business Newell took on was very specific to the Newell company. They grew very fast as a company as a result in a very slow growing industry. The acquisitions also helped Newell expand internationally. Newell as a company knows how to make itself relevant to its mass retailer clients, despite having products that are very similar to its competition. This competitive advantage is due to the acquisitions taken on by the company, which have allowed Newell to develop in the areas such as reliable delivery. The acquisitions have allowed Newell become player in the industry and have allowed them to fine point their management and corporate structure. “Newellization” is a key part of the implementation of Newell’s corporate strategy. To successfully implement “Newellization,” Newell’s acquisition targets needed to demonstrate various crucial characteristics. One criterion for a potential Newell acquisition is the type of business and its stance in the market. Newell favors growing businesses that are already established in the mass retail market, but who have unrealized profit potential. Another criteria also stresses how well the business will fit with Newell and how well it will reflect its existing businesses’ characteristics. This means that the products offered by the target businesses will be non-seasonal, have long-life cycles such as the previous product offerings, and will have similar distribution processes. This will allow leverage among the company’s resources rather than the existing line of products to complement all of the other businesses. Based on the proposed merger, financial analysis shows that the acquisition of Rubbermaid would be beneficial for both companies. The projected benefits of the merger are: • More willingness of stockholders to pay for a dollar’s worth of earnings of Newell Rubbermaid Inc as the P/E ratio after the merger is higher than with just Newell alone. o Newell multiple- $49.07/2.44= $20.11 o Newell Rubbermaid multiple- $49.07/1.85= $26.52 • Net sales will increase to $6,102,582 showing that Newell will grow internally as a company. • Increased operating income due to the new products that will be introduced that Newell did not have before. I do expect Newell to realize the benefits of this merger because Newell has good proposed plans for their acquisitions and they see the opportunities that exist within Rubbermaid. The proposed “price” of the merger is reasonable when compared to the goal of an increase of $325 million in operating profit for the combined companies. This represents a compound annual growth rate of 18%, which is a somewhat bold goal considering they are working in an uncertain environment with increasing material prices. But due to the expected benefits, I believe that this price is reasonable and the Newell should follow through with the acquisition process. Based on the process of “Newellization,” Rubbermaid did make an appropriate merger target for Newell. This is due to Rubbermaid’s main areas for improvement, which are in its manufacturing processes and customer relations. Newell can add value through improving their shipping, manufacturing and customer relationships. Rubbermaid also has a strong brand name as well as determined management attitudes that are compatible with Newell’s showing that their resource synergies do exist between Newell and Rubbermaid, although their cost structures, production processes and value propositions are very different. I think that this partnership should be followed through as the benefits outweigh the costs and Rubbermaid can see a big turnaround.