Newell Company Case Analysis

Newell Company Case Analysis

MBA: 664 Satisfying Shareholders

Dr. Adam Guerrero PhD

Northwood University

May 7, 2015

Newell Company (NC) Mission Statement

Newell is a manufacture and full service marketer of consumer products serving the needs of volume purchasers. Montgomery (2005) p.14

PROBLEM STATEMENT

        In this case, CEO John McDonough tries to increase the shareholder value for Newell Company (NC). However, the valuation of the firm being acquired was done extremely too fast before any potential synergies were revealed. Most of the acquisitions for NC in the past have been small firms in size and increased the value and profitability for shareholders, but the results of acquiring a huge firm such as Rubbermaid in this case proved to be detrimental to NC growth strategy. Newell's top management team thought they could improve the customer service operations at Rubbermaid by the process of "Newellization".

ANALYSIS

        Newell Company (NC) was founded in1902 by Edgar A. Newell by an asset acquisition strategy. “The purchase of a company by buying its assets instead of its stock.  This type of strategy can be used if the target company of interest is bankrupt.”  Asset Acquisition Strategy (2015)  This strategy made NC a major supplier of brass curtain rods. This was a smart business decision, because the demand for brass curtain rods was beginning to increase due to customers relocating to suburban areas. The homes in  suburban areas required more draperies to cover the big extensive windows. NC supplied products for hardware stores, builders and retailers. By 1917 NC had a reputable stance in the industry amongst the rapidly growing chain stores that bought brass curtain rods from NC.

While reading this case, it was discovered that McDonough had successfully headed two acquisitions for NC in 1998. The first was Calphalon and then Rubbermaid as a part of "course correction" inspired by McDonough. McDonough envisioned course correction as a part of generating the next phase of Newell's strategy. McDonough believed that buying stronger brand names would help NC reach over 10 billion in market capitalization. This would ultimately give NC the ability to command higher price/multiples. He also felt that pursuing this option would help the company with its growth strategy in the long term. So, what is NC strategy in particular? My understanding of their overall strategy in this case is that it was two-pronged. According to exhibit 2 their basic strategy was “Merchandise a multi-product offering of brand name staple consumer products, with an emphasis on excellent customer service, in order to achieve maximum results for our stockholders." Montgomery (2005) p. 14  Strategy for NC was based on growing by acquisitions as it was the foundation of NC roots. NC likes to purchase major brand name companies that are not performing well due to high cost and operating margins of less than 10%.Montgomery (2005) NC is known for streamlining processes emphasizing operational efficiency and profitability called "Newellization"  Montgomery (2005) p.3   The aim of the process was to raise operating margins for the acquired firm above the 15% minimum.