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The case is about the journey of Newell which was established in 1903, selling brass extension curtain rod.

It
specialized in hardware, non-tech, non-seasonal, non-cyclic, non-fashionable products. It maintained centralized
administration at the corporate level. It always focused on what it does the best and did not expand its core. In the
case, Newell is facing increasing market power of their primary customers- The Volume Retailers. It wanted to
tackle this challenge by developing or buying stronger brands. In 1998, Newell decided to acquire two firms –
Calphalon and Rubbermaid. Calphalon is a private manufacturer of anodized aluminium cookware (Revenue - $101
million) while Rubbermaid is a plastic product manufacturer (Revenue - $2.4 billion).

Newell’s Corporate Strategy

Its corporate strategy had primarily been to grow by acquisitions (acquired 30 companies). It always acquired
companies which were underperforming due to high costs, whose operating margins were less than 10% and which
added value to Newell’s multi-product offerings. On acquisition, Newell subjected the acquired company through
the process of Newellization which involved centralized divisional administration to control subsidiaries, focus on
operational efficiency instead of product pricing, prime objective of profitability, and monthly financial reviews.
Newell achieved efficiency by adhering to a strategy of consolidation and centralisation of administration. It adhered
to its core of making low-cost, low-technology, non-seasonal, non-cyclical, and non-fashionable sold only to volume
retailers.

Is acquisition of Calpharon profitable for Newell?

Acquiring Calpharon could be a good decision for Newell because:


 Newellization is possible in this case and the objectives could be met.
 Newell could diversify to other channels to increase presence and build a stronger brand.
 Newell could extend its presence to department and speciality stores. However, this would also mean a
divergence from Newell’s core competencies of exploring new horizons.
 Through acquisition, Newell’s operation outlook could improve Calpharon’s operating margins. Also,
SG&A, a major expense for Calpharon could be streamlined.
 The pull strategy from Calpharon could benefit Newell in the long run. Calpharon also provided access to
new markets. Target specifically opened up younger demographics to its premium products.
 This acquisition was going to be small offering a lot of scope for cost efficiency, something for which
Newell was industry wide famous.

Is acquisition of Rubbermaid profitable for Newell?

 This could be a bit dicey decision for Newell as Rubbermaid was too large to transform. McDonough wanted to
develop or buy a stronger brand to increase buyer’s power and increase Newell’s valuation.
 There were reciprocal synergies between Newell and Rubbermaid. Even after to restructuring programs,
Rubbermaid was not able to streamline their operations and was looking for a bailout. There was no iterative
knowledge sharing that could benefit Newell in its operations.
 The resource dependencies could be eliminated across the value chain, but the bigger size of Rubbermaid would
have been a hindrance. However, Rubbermaid provided an opportunity for globalisation and internal growth.
 Financially, operating margin and net profits of Rubbermaid were quite low. The acquisition implied 49%
premium which led to the 11% immediate fall in Newell’s share price.
 Rubbermaid was also too large to be Newellized. M&A talks had been happening for a long time, but they were
initially broken down over the issue of appointing the head of the merged companies.