In October 1998, Newell Company was considering a merger with Rubbermaid Incorporated to form a new company, Newell Rubbermaid Incorporated. The amalgamation would be through a tax-free exchange of shares valued at $5.8 billion. Newell had three major product groupings: Hardware and Home Furnishings, Office Products, and Housewares. Rubbermaid is a renowned manufacturer of a wide range of plastic products ranging from children’s toys through housewares.
Acquisitions are the foundation of Newell’s growth strategy and the company has an aggressive and disciplined approach to achieving its’ growth targets. Newell focuses on acquisitions that are generally mature businesses with ‘unrealized profit potential’, and pass a number of clearly defined screening criteria.
If the transaction is completed, Newell will begin the process of assimilating Rubbermaid’s operations through a process called “Newellization.” The companies expect that the merger will create synergy through the leveraging of Newell Rubbermaid brands. By 2000, these efforts are
The Newellization process
The Newellization process is based on the prospective acquisition target having a number of attributes that correlate with Newell’s requirements of a target organization. The first step in this analysis is that of Newell’s screening criteria applied to the Rubbermaid opportunity.
The first criteria is that the target organization must be a mature business. Rubbermaid was started in 1920 when five businessmen who made toy balloons launched Wooster Rubber. The organization has been continuously run since 1920 and has had a great deal of success over the years. The company name has become synonymous with plastic dishware and storage units.
The next attribute desired of a company to undergo the Newellization process is the existence of Unrealized Profit Potential. In 1995, Rubbermaid at 75 was troubled by rising competition, increased demands from retailers and skyrocketing-raw materials costs. By taking advantage of Newell’s strengths in these areas, increased profits may be realizable.
Strategic Fit with existing businesses is the next criteria defined. This includes a corporation with low technology products, low in fashion and seasonal content and sold through mass distribution channels. Rubbermaid primarily makes plastic products such as household and children’s products. These items are generally fairly low technology although there is some specialization and a degree of higher technology required in the plastics industry. The products are definitely low in fashion and have very little seasonal influence. The products are sold through mass distribution channels, including large retailers.
Another criteria is that the target organization should be Number one or two position in their markets and have established shelf space with major retailers. Although there is no indication in the case as to where Rubbermaid exists within their markets, Rubbermaid has obviously held a very large market share in their product areas. In addition, Rubbermaid has established shelf space with many major retailers.
Long product life cycle is an attribute that is definitely applicable to Rubbermaid products. Rubbermaid’s products include housewares such as plastic containers, storage units, brooms and toys, all of which have a very long product life cycle.
The final criteria defined is that the target organization must have the potential to reach Newell’s Financial Performance standards. Based on the above strategic fit and the current difficulties and tensions faced within the Rubbermaid corporation, there appears to be the potential for increased financial performance with the right leadership and structural changes.
From this analysis, Rubbermaid appears to be an extremely good fit to the Newell organization. All criteria set by Newell appear to be met, by varying degrees by Rubbermaid. This analysis process is somewhat objective and the potential flaw in this analysis is obviously the possible prejudice of the individual(s) performing the comparison. That being said, I feel that in this particulair instance, there is a strong fit between the criteria and Rubbermaid.