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Newell snags Rubbermaid
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October 21, 1998: 3:14 p.m. ET
A $5.8B takeover by household-products giant is latest in long buying binge
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NEW YORK (CNNfn) - To outsiders, it's just another mega-merger -- albeit a welcome one after the recent dry spell in takeover activity brought on by global economic turmoil.
But within the sprawling housewares industry, Newell Co.'s agreement Wednesday to buy Rubbermaid Inc. for $5.8 billion goes by another, more colloquial, name: Newellization.
Under "Newellization", industry analysts say, Newell, a consumer-products concern based in Freeport Illinois, has acquired about 75 companies over three decades, seamlessly stitching them into a business plan whose 32,000 employees generated $3.2 billion in revenue in 1997.
With each buyout, Newell has squeezed costs and boosted margins, all the while rolling out a kaleidoscope of product offerings from Mirro cookware to Rolodex files to Levolor blinds. Executed correctly, Newell executives say, their corporate alchemy yields a larger entity with 98 percent on-time operating efficiency, and a minimum of 15 percent pre-tax profit margin.
Now, the diversified products maker, hopes to "Newellize" Rubbermaid's merchandising mishmash of trash bins, laundry baskets, food containers, baby furniture, Safety-Grip bathroom mats and Little Tikes toys.
The transaction, unveiled Wednesday, values Rubbermaid at $38.68 per share -- a 49 percent premium over Tuesday's closing stock price of 25-7/8 on the New York Stock Exchange.
Under a tax-free swap, Rubbermaid shareholders will receive 0.7883 shares of Newell common stock for each share of Rubbermaid common stock they own. Rubbermaid shareholders will own 40 percent of the combined company, which will be called Newell Rubbermaid.
Rubbermaid stock skyrockets 27%
The purchase, expected to close in early 1999, will be accounted for as a pooling of interests and is anticipated to be accretive to earnings in 2000.
News of the deal sent shares of Rubbermaid (RBD) skyrocketing 27 percent on the New York Stock Exchange Wednesday, to 32-7/8, a 7 point spurt. Newell (NWL) stock eased 5-1/16 to 44, a 10 percent decline.
Newell projected Wednesday that the addition of the Wooster, Ohio-based Rubbermaid to its household menagerie will reap $300 million to $350 million in additional operating income by 2000.
"Rubbermaid and Newell are a terrific strategic fit," said John McDonough, Newell's vice chairman and chief executive officer.
While such boasts are hardly uncommon in the grandstanding arena of mergers and acquisitions, analysts say in this case it is not an empty one.
"They have an excellent track record of taking companies with particularly low profit margins and fixing them," Lynne Hyman, an analyst with CS First Boston, said of Newell.
Rubbermaid, with $2.4 billion in 1997 sales, is substantially larger than the $100 million-$200 million companies Newell is accustomed to acquiring.
In recent years, Rubbermaid has failed to stay ahead of developments -- including a sudden surge in prices for resin the company uses to make many of its plastic products.
Last January, Rubbermaid initiated a broad restructuring that executives said would result in cost savings of $30 million in 1998 and $200 million a year by the end of 2000. In the past three years, Rubbermaid has also closed 11 factories as it moved towards greater reliance on streamlining and automation.
Hyman said Rubbermaid's problems were largely temporary "operational issues" that should not detract from the overall strength of the company, which reported net income of $300 million in 1997.
"It's one of the best brand names in the country," she said.
After the transaction, the combined companies will pose a formidable competitive challenge, analysts say. Together, the integrated companies said they will have $6 billion in sales and a total stock-market capitalization of $14 billion.
McDonough will retain his positions as vice chairman and chief executive officer at Rubbermaid Newell. Wolfgang Schmitt, the chairman and CEO of Rubbermaid, will become vice chairman at Rubbermaid.
The Newell Rubbermaid Board of Directors will consist of 15 members, including nine representing Newell and six representing Rubbermaid.
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