Q2. Will This Core Competence Create Value in Newell's Acquisition of Calphalon?
Q2. Will This Core Competence Create Value in Newell's Acquisition of Calphalon?
Q2. Will This Core Competence Create Value in Newell's Acquisition of Calphalon?
Rubbermaid has strong mass retailers' relations but inefficient operations. Due to the increase
in resin cost, COGS went up to 73% as a % of sales in 2007. It also faced logistics and
services related issues. By leveraging its operational and financial systems and synergies
from existing business, Newell could improve Rubbermaid's deteriorating position by
controlling Rubbermaid's costs, pushing margins to ~9%-11% net income as a percentage of
sales.
Though Rubbermaid fits Newell's action criteria and corporate strategy, the $5 billion paid
acquisition seems high after considering the post "Newellization" forecast. The net present
value of future cash flows is a~ $2.2 billion for Rubbermaid, half the acquisition price. This
excess premium paid makes any potential synergies or value creation questionable since the
company will need to overcome this premium to get any value out of this transaction. The
amount of value added by this transaction will depend on how well Newell can absorb
Rubbermaid. Rubbermaid is ~75% the Newell size, which would mean a much longer period
of "Newellization" compared to the usual six months. If the "Newellization" process takes too
long, Newell will need to invest a lot more time and resources in this integration, reducing the
time for focus on other acquisitions. Rubbermaid's competence in new product development
adds value to Newell. If Newell were to absorb Rubbermaid, a cultural misfit might alienate
the new workforce and destroy the processes that promote new product
development. Overall, the acquisition of Rubbermaid does not seem like a good fit.