Can Chainsaw Al Really Be A Builder? America's most ferocious cost cutter says he wants to make Sunbeam bigger. With help from Sam Walton's daughter, he's looking at a major acquisition.
By Patricia Sellers

(FORTUNE Magazine) – One more turnaround like the rest of them, and Al Dunlap will go to his grave known as Chainsaw Al. "The damn 'Chainsaw.' They'll put it on my tombstone. And then I'll come down and haunt 'em," says Dunlap, who is always riled about something. On this particular Friday morning, in his office at Sunbeam headquarters in Delray Beach, Fla., he is griping about his well-worn image as the mercenary CEO who storms into ailing companies, hacks at costs, fires thousands, and walks away really rich--he reaped $100 million restructuring Scott Paper--and totally guiltless. Not that corporate America's self-styled Rambo (he once posed for a photo wearing an ammo belt across his chest) is suddenly apologetic for his take-no-prisoners style. He simply wants a new identity. Al Dunlap wants to be known as Mr. Growth.

It's hard to imagine. Yet when Sunbeam announces year-end results in January, people will see that sales, not just profits, are rising dramatically. The world's most famous cost cutter, as Dunlap proudly calls himself, is launching new products--truly innovative stuff, from high-tech blankets to high-end gas grills--at a record rate. To promote the merchandise (sold under the Sunbeam and Oster brand names), Dunlap has increased ad spending more than 25-fold.

Surprised and encouraged by the growth prospects, investors have bid Sunbeam stock up dramatically since Dunlap took over as CEO 18 months ago. "The stock went from 12 1/2 to 19 to 29 to 39 to 49, which is faster and further than I ever expected," says mutual fund manager Michael Price, whose 20% of the shares (recently around $39) are worth $682 million.

Now Price and others are asking, What's next? Dunlap, arguably America's least patient boss, says he intends to do some kind of major deal--either sell Sunbeam to another company, merge it, or acquire--very soon. Wall Street is betting Sunbeam will buy one of its bigger consumer-products rivals, maybe Black & Decker or Maytag. "If we do a major acquisition," Dunlap says, "I'll stay probably two years, one to restructure the company and one more to grow it."

So Sunbeam could become a Double Dunlap. As Paine Webber analyst Andrew Shore says, "Patient Sunbeam investors will get two Chainsaw turnarounds for the price of one."

Until recently Sunbeam seemed just another of Nuclear Al's fantastic but formulaic restructurings. "We use a cookie-cutter approach," admits Sunbeam executive vice president Russell Kersh, a gregarious financial wiz who has been Dunlap's right hand for 14 years, through the turnarounds of Lily-Tulip, Crown-Zellerbach, and Scott. When Dunlap, now 60, walked into Sunbeam in July of 1996, it was a bloated, barely profitable shell of a company that had suffered through bankruptcy (when it was part of Allegheny International) and a parade of ineffective CEOs. Once as renowned in appliances as General Electric, century-old Sunbeam had laggard product lines, bad relationships with retailers, no plausible strategy, and a stock price down 50% in two years. "It was clearly the worst company I've ever tried to turn around," Dunlap says.

As usual, he laser-beamed every aspect of the business, chopping, slicing, and dicing just about everything. He Osterized Sunbeam, you might say. By eliminating 16 of 26 factories, five of six headquarters, and half the 12,000 employees, Dunlap extracted $225 million in annual savings. Sunbeam's revenues didn't decline much because Dunlap sold only a few noncore operations. He completed most of the changes in seven months--typical Dunlap. A West Point graduate and former paratrooper, he says he follows a rule that is etched on a sign behind his desk: IN TODAY'S WORLD, THERE ARE TWO KINDS OF COMPANIES: THE QUICK AND THE DEAD.

Dunlap says he's now halfway through Stage II of the turnaround--the growth phase, which for him is a more daunting challenge than Stage I. "Mickey Mouse could do the cost cutting," Dunlap says. "It's much harder to know where to add and how to build." Skeptics suspect he is just prettying up Sunbeam for a sale. In his other turnarounds, after all, Dunlap has made some changes that were considered cosmetic (at Scott he discounted tissues to pump up revenues) and scooted off to do another restructuring before getting credit or blame.

Sunbeam appears to be different, since he's sticking around to oversee the growth. His strategy is to get everyone--employees, retailers, investors--thinking of Sunbeam as a fast-growing and highly profitable consumer-products marketer rather than a seller of commodity appliances. To reinforce the new attitude, he fired almost everyone in the senior ranks--shortsighted appliance guys, he says--and installed a team of indefatigable Dunlap disciples who are motivated by their stock options. They receive no bonuses or annual raises.

"Al has the highest performance standards of anyone I've ever known," says Don Uzzi, Sunbeam's aptly surnamed sales and marketing chief. A veteran of Procter & Gamble and PepsiCo, Uzzi was most recently president of Quaker Oats' beverage division (Gatorade and Snapple). "I'm working harder than I ever have in my life," he says. "I haven't had a day off yet." Weekends? "On occasion."

Uzzi and Dunlap have made all manner of changes to redirect Sunbeam at consumers. They've replaced most of the sales and marketing people with alums of packaged-goods companies like P&G. They have streamlined Sunbeam's bewildering product lineup by purging 87% of its 12,000 varieties of merchandise. And by asking homeowners what problems they want their appliances to solve, Sunbeam is developing products much more efficiently than in the past. The company's offerings today include dozens of new appliances (like a soft-serve ice-cream maker), updated versions of old ones (a self-stirring crock pot), and newly advertised items that most consumers never knew existed (Sunbeam's "blanket with a brain," the only electric blanket that detects when your feet are cold and your heart is warm, and heats your body accordingly).

Sunbeam has started shipping to 20 new foreign markets, and Dunlap says international opportunities are all too obvious, such as 220-volt appliances for Europe and Asia. (Sunbeam had been shipping them American-style 110-volt products. Duh.) Also electric rice steamers for Japan. "They do eat rice there, for God's sake," Dunlap says.

He is particularly interested in what he calls the "health at home" market, which targets consumers who see their homes as their safety zones. In January, Sunbeam is introducing Freshsource, a countertop water-filter system ($80) that removes microorganisms conventional filters miss. Another new product, Allergysmart, is a unique air filter (about $200) that monitors the level of allergen particles in a room. The device shuts off when the air is clean.

"These two products alone will bring in $100 million in revenues in 1998," predicts Dunlap--even without the endorsement of the American Medical Association. Last fall the AMA reneged on a contract to endorse Sunbeam's "health at home" products. Dunlap went ballistic and is suing the AMA for $20 million. "I've never ducked an issue in my life," he says.

Sunbeam's increasing revenues apparently reflect deeper improvements at the company. At Ogilvy & Mather Chicago, the ad agency Dunlap hired a year ago, CEO Tom Hall cites independent surveys in noting that Sunbeam has risen in status faster than any brand he's ever seen--from near invisibility and irrelevance to consumers to one of the most admired brands in its market. Retailers are impressed too, particularly with Sunbeam's improved service and speedier deliveries. The company is gaining share in every key market--grills, mixers, blenders, clippers. Pre-Dunlap, it was losing share in all these categories.

Now Dunlap is at a turning point: Can he keep up the growth? He told Wall Street a year ago that Sunbeam would double its sales to $2 billion and earn $40 million in operating profits in 1999. This would require more than 25% compounded annual revenue growth--quite a feat in a mature industry. Unless Thomas Edison is hiding in Sunbeam's R&D lab, Wall Streeters say, the boss will not hit his targets through internal growth.

"I totally disagree," Dunlap says.

The stock is down a bit lately, partly on rumors Dunlap will take the top job at Waste Management (no way), partly on concerns the company won't make its fourth quarter (it probably will). Even if the ever boastful boss has full faith in his ability to hit his targets, he knows he must do more to get the stock where he wants it. "I'm a shareholder-value creator," he says, noting that he checks Sunbeam's stock price at least eight times daily. "I believe in quantum leaps to create additional shareholder value. At this stage of a turnaround, you either have to acquire, merge, or sell."

To explore the "quantum leap" alternatives, Dunlap in October hired two investment banking firms, Morgan Stanley Dean Witter and a little-known Arkansas outfit called Llama Co. Llama happens to be headed by Alice Walton, daughter of Wal-Mart founder Sam Walton. "Miss Alice," as Dunlap calls Walton (she calls him "Mr. Al"), has been encouraging him to make Sunbeam bigger. "The vendor base to the mass retailers is consolidating," she explains. "The big-box guys have gotten tougher, and if you're too small, you don't have the ability to serve the largest retailers." Like Wal-Mart? "I'm not representing Wal-Mart," Walton says. "Also companies like Kmart and Dillard's and Home Depot."

Those who know Dunlap expect a multibillion-dollar deal early in 1998. One scenario has Dunlap selling Sunbeam to a global giant such as Philips, Electrolux, or Samsung, or maybe U.S.-based Newell, a powerful housewares marketer. But persuading anyone to pay Sunbeam's rich price won't be easy; Dunlap, who would surely leave after a sale, has multiplied the company's market value to over $3.4 billion.

So Dunlap will probably buy, using Sunbeam's stock as his currency. In this case, Dunlap says, "I don't want to do small acquisitions. They dissipate your resources. I'd rather do something big." Maybe something hostile, Al? "I have no problem with hostile takeovers," he says, admitting that they appeal to his ego.

At any mention of specific candidates, Dunlap turns pokerfaced. But he does lay out his acquisition criteria: "We would look for a company that's poorly managed, has strong brands that aren't being leveraged, and has synergies with Sunbeam," he says. "Synergies are important because I don't believe in conglomerates."

In light of his wish-list principles, Dunlap obviously is not attracted to some companies that analysts have bandied about, such as Rubbermaid (too low tech) and Tupperware (can you imagine Dunlap fitting in with that touchy-feely selling style?). He has apparently considered buying Philips' household-appliance business, which includes Norelco--and it's still on his list. Dunlap's other likely targets: Maytag, Whirlpool, and Black & Decker.

Wall Streeters would love to see Sunbeam buy Black & Decker. Says Paine Webber's Shore: "Black & Decker has a stock that has languished. It has several hundred million dollars of costs to be taken out of operations. It has a monster product line. And it has a great international presence that could help Sunbeam expand its products abroad."

Another advocate of an acquisition by Sunbeam is the company's largest shareholder, Michael Price. "Al's great. Let's run with him," says Price, who persuaded Dunlap to join Sunbeam and wants him to stay. "He's got my 20% ownership position behind him and more capital if he needs it."

The telltale sign of Dunlap's new direction may be hanging right behind him on his office wall. Asked why he has a ferocious feline peering over his shoulder, Dunlap explains, "Well, first of all, I'm a Leo. More importantly, the lion is a predator. And I love predators. They can't order room service, you know. If they want a lamb to eat, they gotta go and slaughter it themselves."

Just because he's a growth guy, don't think he's lost that killer instinct.