I. The DealThe Problem: Newell's aggressive growth strategy and Rubbermaid's declining revenues.The problem facing Newell is the need to grow aggressively in a slow growth product market and the need to find synergistic acquisitions that could seamlessly be incorporated into their core businesses. Rubbermaid on the other hand, has operational efficiency problems, rising resin prices, poor service performance, and management problems that undermines their corporate culture for financial strength and innovative capabilities.
The Solution: Newell's acquisition of Rubbermaid.Faced with an aggressive mandate to grow, Newell's management found Rubbermaid an attractive target that had cost and operational synergies that would increase their revenues and product lines.The IssuesThree issues challenge the efficacy of the Newell Rubbermaid acquisition:1) Will the zeal to drive revenue growth introduce costly and unmanageable levels of complexity that can drag down overall profitability?2) Will an acquisition of this magnitude create disparate operating environments that are difficult to integrate or simplify?3) Will profits be unlocked from combining synergistic forces that will justify the value created for the premium paid for Rubbermaid?II. Value CreationAn examination of value creation in the Newell Rubbermaid acquisition will determine if the deal was indeed synergistic and whether the synergies will maximize shareholders' wealth in light of the issues raised. In short, a look at the operational synergies of the combined companies will reinforce the likelihood of whether success between Newell and Rubbermaid would be eminent.Operational SynergiesThe underlying economic efficiencies for the acquisition make it plausible that Newell can create cost economies arising from both cost advantage and differentiation advantage.
Firstly, potential sources of cost advantage lies in economies of scale and scope. Rubbermaid's inability to solve their operational problems made them a viable takeover target for any company that had operational efficiencies as their core competence. In this case, the Newellization process would turn around Rubbermaid's operational problems and create a highly focused strategy that when integrated with Newell's internal growth momentum would achieve financial growth and competitive advantage. Secondly, differentiation advantage lies in Rubbermaid's brand reputation and distribution networks.
By acquiring Rubbermaid, Newell not only capitalize on a good brand that can change people's perception of their existing products but also differentiate their own products from competing products in the market. Rubbermaid's product image is also associated with the prestige of the distributors that carry their products but at the time of the acquisition much of its relationships have been challenged. Newell can revitalize these channels in terms of image of the product and postsale services.Rationale of Acquisition SelectionTherefore, from an operational stand point Newell's acquisition of Rubbermaid seems substantiated because the synergies justify the premium price tag. Newell can easily digest Rubbermaid due to three reasons:1) Newell's expertise in acquisitions and post-acquisition integration (Newellization) makes them an attractive suitor that can turn Rubbermaid around to produce positive revenue growth and profits.
Thus, their zeal to drive revenue growth through this acquisition will not turn into an unmanageable nightmare of logistical problems but one that can be effectively executed due to their expertise and past successes. As such, horizontal acquisition like this has more collusive synergies that can allow the acquirer to overcome proliferation of marginal components that can constrain profits.2) Rubbermaid's problems were largely operational which when integrated with Newellization and streamlined can produce speed to market and speed in positioning which can build competitive mass with mass merchandisers. Newell's previous successes in applying its formula of Newellization has now become part of the company's core competence. Disparate operating environments will be integrated as part of the Newellization process in which focus business strategies, centralization, and reduction of corporate overhead are primary concerns.3) Rubbermaid has one of the best brand names in the country.
Such a prestigious brand can promote and expand Newell's competitive advantage. This will unlock further potential profits because the intrinsic value that comes from a brand name like Rubbermaid is very difficult to replicate. The acquisition then provides a time efficient alternative to internal development by Newell which compensates for the premium value of the deal.III.
RecommendationsAfter examining the value creation and rationale for the acquisition, it would be highly recommended that the acquisition proceed. The acquisition strategy will create a profitable transfer of resources between the two companies where value creation through cost reduction and product line expansion can contribute to revenue growth. However, in light of the cost and revenue synergies further recommendations would contribute to the successful integration of the two companies. Firstly, recommendations can be made to focus on major customers that might have been lost in the pre-acquisition stage.
Secondly, establishing a balance where R;D and innovation capabilities can be restored and finally, getting into the full restructuring mode of creating new methods, new attitudes and a new image. These recommendations answer not so much to operational efficiency issues but organizational culture. The integration of culture where values, work rituals, and leadership promotes motivation, norms, and development that will add value to customer service and innovation to product development.IV.
SummaryRubbermaid's perils in operational excellence motivated Newell to consider it as a good acquisition prospect. It fitted well with the strategic capabilities of Newell's existing businesses. Through share resources and transfer capabilities, Rubbermaid's untapped profit potentials could be unlocked. This amounted not only to increasing shareholders' wealth but also to added synergies that will account for the premium price paid for Rubbermaid.
As a result, the Newell Rubbermaid acquisition has shown that organic growth in itself is insufficient to grow revenues and that acquisitions are a necessary peril to establish pricing power, expansion of base businesses, and increasing revenue to SKU ratios. In short, the acquisition has all the likelihood of success because Newell has the capabilities and expertise in transforming a revenue culture into a profit culture based on an integrated perspective of its processes and metrics.
