Ashley Wilson - Anton Gladnikov - Chris Morrow - Zachary Stevens

Business Strategy

Case AnalysisMay 30, 2007

Agenda

2. If you buy them, you will grow 2. If you buy them, you will grow

3. What is “Newellization” and how does it work? 3. What is “Newellization” and how does it work?

4. “SWOT” in the world are you talking about?!4. “SWOT” in the world are you talking about?!

5. The Rubbermaid Mesh 5. The Rubbermaid Mesh

6. A Business Capstone’s 2-cents6. A Business Capstone’s 2-cents

7. Your time... If there is any.7. Your time... If there is any.

1. Delving into Newell Corp.1. Delving into Newell Corp.

Mission

• Accomplish mission through its various strategies

“Newell is a manufacturer and full service marketer of consumer products serving the needs of volume purchasers”

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Newell Company Cycle

IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline

Time

Continued GrowthContinued Growth

Newell continues to grow primarily

through acquisitions of other companies.

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

History

1902

•Established when Edgar A. Newell

bought the assets of a bankrupt

manufacturer of brass curtain rods

1917•National distribution

1966First Acquisition

1960’sFurther

expansion of business

lines

1972Newell went public

Acquired over 30 firms

1972-1990’s

•The company grew and distributed its products through

a variety of distribution channels

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Best

Better

Product Lines

HardwareHardwareHome Furnishings

Home FurnishingsHousewareHouseware Office

Products

Office Products

Offering:

Good

Better

Best

products in all categories to appeal to a wide range of consumers

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Serving the Mass Retailer

• One of Newell’s Key strategies• Newell brands are in 5 of the top 15 retailers

in the U.S. • Newell generates 15% of its revenue from

Wal-Mart sales• Bargaining power of buyers (retailers) is

significant in Newell’s industry • Newell has an excellent reputation with the

mass retailers • Integration of newly acquired companies must

be done efficiently and quickly so reputation is maintained

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Competitive Multi-Divisional Structure

Headquarters

Basic Functions Acquisitions

Division Division Division Division Division

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Company Structure

• Each division handles its own design, manufacturing, marketing, sales, merchandizing, and service

• Each division must adhere to the company strategy• Each division is responsible for its profit performance• Strict financial and operating reviews of divisions

monthly• Management salary is based on performance • Internal growth is rewarded

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

SWOT Analysis

•Culture clash with new acquisitions

•Integration difficulties can disrupt the company

•Dependency on mass retailer

•Threat of private labels

•Lack of internal growth

•Growth and expansion with future acquisitions

•1997: Rubbermaid & Calphalon acquisitions provide potential expansion, growth, and success

•International markets

•Competition in the industry is high

•Newell is large…reduces speed in response to events in external environment

•Financial weaknesses (1992-97)

•Declining profit margin

•ROIC & ROA declining

•Diversity of products

•Strong brand names

•Horizontal acquisition strategy

•Create market power and synergy

•Divestiture and product line rationalization strategy

InternalInternal ExternalExternal

++ll

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Growth Strategies

InternalInternal GlobalizationGlobalization

Business Acquisitions

Business Acquisitions

Primary ObjectivesOverview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Internal Strategy

• Understanding Consumers• Demand Creation through Marketing• Commercializing innovative new products• Cross-selling existing product lines

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

“Internal Growth is growth from continuing business owned more than one year.”

Acquisition Strategy

- Dan Ferguson

“2 + 2 ≠ 4, if we do this right we get more than 4.”

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Acquisition Strategy

Criteria: • Existence of consumer meaningful brands

that respond to differentiation and innovation

• Shelf space• Good customer and channel dynamics• Strong margin and growth potential • Top rank of the market share• Synergy

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Globalization Strategy

• Global presence small in 1997, but growing• Selective international acquisitions• Growth of consumer brands economies in

Eastern Europe, Asia, Mexico, and South America• Overseas sales:

2004: 24%2005: 24% 2006: 26% of total sales

• Target global consumer acceptance

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Newellization?

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

“Newellization” – Well-established profit improvement

andproductivity enhancement process that

isapplied to integrate newly acquired

productlines to the parent company.

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Newellization

Well-established profit improvement and

productivity enhancement process that is applied to integrate newly acquired

product lines to the parent company.

Recognize cost structure problems

Recognize cost structure problems

Quickly compare Income Statements

Quickly compare Income Statements

Find ways to reduce costs

Find ways to reduce costs

Raise Operating Margins above 15%

Raise Operating Margins above 15%

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Acquisition Strategy

Newellization: “newellizing” acquired business into a Newell-like company.

• Transition cycle:• Starts after 6 – 18 months • Led by brought-in president and controller• Focusing acquired business strictly on its core

competencies

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Acquisition Strategy

Newellization: reducing corporate overhead through centralization of administrative functions and tightening financial controls.

• Centralize responsibilities:• Centralize Accounting system• Expenditures Approval• Cash management, A/R, A/P• Order processing• Data processing operations

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Acquisition Strategy

Newellization: establishing more focused business strategy, improving manufacturing processes.

• Enhancing efficiency• Eliminating non-productive lines• Reducing inventories• Increasing A/R turnover• Extending A/P terms• Trimming excess costs

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Acquisition Strategy

Tools:• Leverage One Newell Rubbermaid

• Building one common culture of shared values

• Integrating common functional capabilities – HR, IS, Finance, etc.

• Consumer-meaningful branding• Focusing on pull-strategy• Investing in research• Creating demand around the world

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Flashback to 1997

Newell Corp. is looking to grow their company through

two BIG acquisitions:Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

•Increase the size of Newell dramatically

•Name change to Newell Rubbermaid, Inc.

•Expand global presence

•Market value of Newell Rubbermaid will increase to over $10 billion

•Hong Kong reverts to China after 156 years as a British Colony.

•Britain's Princess Diana tragically killed in Paris car crash.

•Iowa woman gives birth to septuplets; all survive.

•Less significant acquisition, but

• important strategic move

• Help Newell expand into upscale retailers channel

•Bring discipline to financial, organizational, and manufacturing aspects of Calphalon

• Stanley Gault, CEO• Introduced 100 new

products every year• Annual profit increase of

14%

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Rubbermaid

Infant ProductsInfant ProductsHome StorageHome Storage CommercialCommercialProducts in

Retail Stores:

Glory Days (1980 -1991)Glory Days (1980 -1991)

Rubbermaid’s Spiral Down

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

MismanagementMismanagement

Tug-o-WarTug-o-War

•Wall Street calls for unit volume growth

•Rise of resin prices, uncontrollable costs

•Undercut, losing market share

Inability to CapitalizeInability to Capitalize

•Stagnant International growth

•Wolfgang Schmitt, CEO

•Continued product innovation

•Restructuring to cut costs

•Lackluster profit growth

The Acquisition Details

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Round TwoRound Two

RevenuesRevenues

Purchase PricePurchase Price

•Year prior, discussions break down

•Now, Rubbermaid needed “Newellization”

•$5 billion

•49% premium over Rubbermaid closing market price

•Newell shares tumble 12%

•Rubbermaid - $2.4 billion

•Newell - $3.2 billion

The Motivators

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

The ultimate “Newellization TestThe ultimate “Newellization Test

Long-term BenefitsLong-term Benefits The VisionThe Vision

•Same distribution channels

•Diversification of Newell

•Increasing market share & new markets

•Rubbermaid is the challenge

•Increased costs, increased time to “Newellize”

•Double Newell revenues, increase profit margins

Acquisition Aftermath

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

Risky AcquisitionRisky Acquisition Rubbermaid OverpaidRubbermaid Overpaid

Difficulty IntegratingDifficulty Integrating Sluggish Sales GrowthSluggish Sales Growth

•Largest acquisition to date •Shares dropped 12% after announcement

•1999 EPS reduced & failure to meet analyst estimates

•Share price continued to decline for many years

10-year Famine is Ending10-year Famine is Ending

Recommendation

• If its not broken, don’t fix it

Small BusinessesSmall Businesses

Niche MarketsNiche Markets

Internal StrategyInternal Strategy

Focused Growth

Overview

History

Products

SWOT

Strategy

1997 Acquisition

Results

Conclusion

thank you