Newell Case
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STRATEGIC PLANNING AND IMPLEMENTATION
DIC 5 2003
NEWELL CASE
ANTECEDENTS OF the COMPANIES IN QUESTION
In 1992, the Newell company was analyzing two acquisitions in the manufacturing industry that produced and selled basic articles for the home and tools sector.
The first, Sanford, was a company with headquarters in Illinois that designed manufactured and marketed plastic articles such as pens and other writing instruments for office and school markets. Its profit was approximately $US140 million and the cost of this company reached $US 600 million. Despite the solid history of the company and its good management handling, changes in the market for office products had changed the situation of it.
At the moment (1992), financial information of the company showed that the growth in net sales decreased almost 21% (from 27.6% to 7%) over the same period of the previous year. Even though the purchase of Sterling wasn't leveraged neither in long nor short-term debt, the profit of the company in 1990 also displayed deceleration.
One sees that with the acquisition of Sterling, there was a substantial increase in capital of work, which was over 85% in comparison with the previous year, and in a 200% in comparison with 5 years back. Although the stocks displayed a fall in growth of 5%, it apparently remained, in acceptable levels for the shareholders (stock had an actual growth of 25%).
It would have been better to have sufficient information in order to establish if the capacity to generate cash flow of the company towards the future would allow it to establish a sale price of $US 600 million...