Question 9 – making sense of acquisitions? Newell’s reasons for wanting to acquire Calphalon were to use the Calphalon’s presence in the development and specialty stores to build its own presence in these channels as well as to learn from Calphalon’s experiences in pull strategies. Newell will probably not be able to improve Calphalon’s performance to the extent the numbers show due to the fact that Calphalon runs its business different than Newell. SG&A expense will look different for Calphalon than for Newell due to the way Calphalon markets its products with in store demonstrations, book signings etc.
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Newell should continue focusing on what it does best, cater to mass-retailers, therefore, Calphalon’s acquisition will not make sense in the long run. Even though there could be some operational efficiencies that Newell could drive in Calphalon, these gains will not be enough justify veering away from Newell’s core strategy of buying business that manufacture high-volume products which appeal to mass-retailers. Calphalon does not seem to provide high volume products that are priced at a level that would appeal mass-retailers.
I think that it would be risky for Newell to venture into unknown territory with Calphalon, but the advantages Newell would gain can easily outweigh the risks. Rubbermaid acquisition on the other hand seems to be more aligned well with Newell’s overall strategy. Not only Rubbermaid manufactures products that are wanted by retailers but also their presence in the international markets would make Newell bring international sales to 25 % of its total sales, thus hedging market risk.
From Exhibit 4, it is possible to see that if Rubbermaid’s cost structure is changed to that of Newell’s, net income would double from 132. 5 to 332. 7 million dollars. However, there are problems with this acquisition and the Rubbermaid could be too big of a leap for Newell to take. The companies are almost the same size and Newell does not have prior experience with turning around companies as big as Rubbermaid. Meanwhile, it appears that Rubbermaid’s cogs are higher than Newell’s cogs.
Considering that Rubbermaid is unable to pass these increased costs to its customers, Newell could be faced with an impossible task to achieve. Also, Rubbermaid is the problem that never ships on time or that requested quantity. Newell’s reputation with retailers could be severely damaged by this acquisition if Rubbermaid’s level of service is not quickly improved. Overall, this acquisition offers more risks than rewards for Newell and by that reason I think that they are not ready to survive these risks yet.