Part I:
Read the Learning from Mistakes vignette beginning on the first page of Chapter 6. It will explain why the Newell-Jarden merger has not generated value for shareholders.
Imagine you were advising firm managers on how they could best leverage the businesses they have. Review Newell Brands Inc. SEC Filing 10-K Annual Reports to identify the business units of the firm and how they are currently organized into larger strategic business units. You can use the EDGAR Company Filings webpage as a resource to help you find this information. Consider key products and brands within the firm to identify potential core competencies and areas of commonality in their value chains that could be seen as sharing opportunities.
Evaluate how the firm can leverage opportunities for:
building on core competencies,
sharing infrastructure,
increasing market power across business units,
potentially divesting any of its remaining business units, and
creating long-term competitive advantage.
Part II:
Provide an example of a different company that has unsuccessfully used diversification as a corporate-level strategy (do not use the Newell-Jarden Merger) and address the following:
Describe the type of diversification (e.g., related versus unrelated),
Explain the purpose of implementing this strategy, and the reasons for its failure.
What should they have done differently?
What corporate-level strategies should they use going forward? Why?
Combined, Parts I and II should be at least four, but no more than five pages in length. The title and reference pages do not count toward this requirement.
Organize your paper using section headings and subheadings that align with the assignment requirements. Adhere to APA Style when constructing this assignment, including in-text citations and references for all sources that are used. Please note that no abstract is needed.
Writing in a professional and objective voice is important. Write objectively from the third-person point of view. Avoid writing in the first-person voice (e.g., I and we) and second-person voice (e.g., you and your).
The Vignette:
The merger of Newell and Jarden seemed to make perfect sense. Newell, the maker of a range of household and office products including Graco strollers, Sharpie markers, Calphalon cookware, and Rubbermaid containers, had for years grown through the acquisition of other manufacturers. The firm had a long success of improving the operational efficiency of firms it acquired and dominating product segments. Jarden looked like a great target for Rubbermaid to continue this pattern. It made a range of similar household products, including Ball glass jars, First Alert fire detectors, and Sunbeam small appliances.
Michael Polk, the CEO of Newell, saw great value potential in the combination of the two firms. Jarden had allowed its business units to run autonomously. Newell could gain efficiencies by integrating the Jarden businesses into Newell’s business model. By combining research and development, supply chains, and back office operations, the firm could reap $500M in savings annually. Newell could also leverage the power of some businesses to help others. For example, in the infant business, Newell’s Graco was a major player. Newell could leverage the relationships Graco has built with major retailers to convince them to carry Jarden’s Nuk line of pacifiers and bottles.1
It all seemed rational with strong potential for clear value creation. The stock of Newell was trading at $45 a share when it announced the $15B acquisition of Jarden in late 2015. The deal closed in April 2016, and the stock of Newell continued to rise as investors expected to see the success of the merger. The stock hit a peak of nearly $54 a share in June 2017, but then the tide turned dramatically. The firm reported disappointing sales and earnings. In early 2018, Newell managers decided to cancel paying $35M in employee bonuses. Activist investor funds pressured the firm for governance changes, including changing the makeup of the firm’s board of directors, giving the activist investors majority control of the board. But the bad news kept coming for Newell. Sales declined by over 40 percent in 2018, and operating income dropped by over 50 percent. As of early 2019, the stock was down to $17 a share. At the time of the merger announcement, Newell and Jarden were worth $12B and $10B, respectively. As of February 2019, the combined firm was worth $8B. Thus, the acquisition arguably destroyed $14B of shareholder value.
Why did this merger fail? Problems arose both inside and outside the firm. The integration of Jarden into the Newell way of operating was not smooth. There were culture clashes and fights over the future structure of the firm. When Newell tried to combine units and centralize staff, many of Jarden’s product experts were either shifted to support products they didn’t know well or were laid off. For example, salespeople who specialized in a single product, such as fishing equipment, were forced into a generalist sales team for outdoor equipment in general. The combined sales teams generated disappointing sales with major retailers in 2017. In response, Newell undid many of these organizational changes. As a result, the firm found it had overstated the cost efficiencies that would come from the combination.
There were also difficult strategic differences. For example, Newell’s sales tactics appeared out of place for some of Jarden’s products that were more highly differentiated than most of Newell’s products. Newell responded to sales shortfalls at Yankee Candle by ramping up sales of the candles at discount retailers, such as Walmart, at dramatically reduced prices. Martin Franklin, the former CEO of Jarden, complained this cheapened the brand image of Yankee Candle, which had been positioned as a premium brand.
The firm also faced external challenges. Hurricanes in the southeast in 2017 shut down a number of Newell’s suppliers of resin, the core material used to make plastics. This resulted in an increase in cost for the firm as it had to seek out new suppliers. Also, the struggles of key retailers, most notably with the bankruptcy of Toys R Us, reduced demand for Newell’s products. The firm also found itself relying more on retailers, such as Amazon and Walmart, who regularly pressure the firm on product pricing.
Newell has responded to these pressures by announcing that the firm would sell off a number of its businesses, accounting for over 30 percent of the firm’s sales, and focus on nine core consumer product areas. But it is fairly clear that the combination of Newell and Jarden has failed to generate and will likely never generate any of the shareholder value projected when the deal was conceived.
