Newell Isn't Bagging Big Game Anymore

Sure, Newell Co.'s products--the likes of pots, pans, and curtain rods--are mundane. But its profits have been the stuff of dreams: Thanks to a long string of acquisitions, the obscure houseware and hardware manufacturer has churned out an average annual profit gain of 26.5% since 1976, with net income reaching $101.3 million last year. Meanwhile, revenues have soared to $1.1 billion from just $87 million. And unlike many deal-hungry companies, Newell has financed its purchases out of cash flow, so its balance sheet is virtually debt-free.

But Newell's growth engine may be running low on gas. The company hasn't made a major acquisition since it bought glassware maker Anchor Hocking Corp. for $350 million in 1987, a move that doubled revenues, to $988 million, the following year. Newell, based in Freeport, Ill., has purchased a few companies, each with some $50 million in sales, since then, but it has been rebuffed in its last two attempts to buy larger corporations. Although it delivered a 19% earnings increase last year, the slowdown in acquisitions hit the top line: Revenues fell 4.5%, the first dip in more than a decade. The recession hurt, too, as the weak housing market reduced demand for Newell's kitchen and window hardware products.

To get its growth chugging again, Newell is now chasing its biggest deal yet. In June, it sought antitrust approval from the federal government to buy up to 15% of $2 billion hardware maker Stanley Works. The venerable New England company responded by setting up takeover defenses and by filingan antitrust lawsuit against its acquisitive suitor. Newell Chief Executive Daniel C. Ferguson insists he will continue to court Stanley. "I've done this for 25 years," says 63-year-old Ferguson, whose father was one of four Newell founders back in 1921. "We've got time."

But time is no guarantee that Newell's investment will bring Stanley, based in New Britain, Conn., into the fold. Newell has long been the master of what one target calls the "creeping takeover." It acquires a small stake in a target company and then opens merger negotiations. But this strategy worked better before the Anchor Hocking deal raised Newell's profile. "People have their antennae up looking for Newell," says one competitor. Indeed, despite two years of wooing, Newell hasn't been able to creep above its current 10.1% stake in hair-care goods manufacturer Goody Products Inc. or its 5% of glassware maker Lancaster Colony Corp.

Stanley would be a big gulp for Newell. Although debt stood at just 16% of Newell's total capital at the end of 1990, the company had only $20 million in cash at the end of the first quarter. A deal for Stanley could top $1.5 billion, and loans for highly leveraged deals aren't exactly easy to come by right now. Ferguson says he would consider swapping 20% of Newell for 20% of Stanley, but a Stanley spokesman says the company wants to remain independent.

Fortunately, dealmaking is only half the Newell story. The company owes part of its success to Ferguson's decision in the late 1970s to focus on selling to mass-market retailers such as Wal-Mart Stores, K mart, and Home Depot. As those companies experienced explosive growth during the 1980s, Newell grew with them.

LITTLE TOUCHES. Distribution and service became Newell hallmarks. In the late 1970s, the company was among the first in its industry to establish electronic links with its customers. That enabled retailers such as Wal-Mart to order goods via computer instead of through the mail or by telephone. And the company doesn't forget the little touches. Its employees often restock shelves for retailers, freeing up store personnel for other tasks, says K mart Corp. Division Sales Manager Wayne Sales.

Newell has proved adept at integrating new companies into its system. After buying Anchor Hocking, Ferguson split the company into units centered on product lines, closed a money-losing glassware factory in West Virginia, and lopped $60 million off overhead. Anchor's consumer glass business was losing $10 million on revenues of $200 million when Newell bought it, says Ferguson. Last year, it posted a 15% net operating margin.

Newell's steady stream of acquisitions has paid off for shareholders, too. Since 1983, there have been three 2-for-1 stock splits. Newell was trading at 35 recently, up from about 6 shortly after the October, 1987, stock market crash. Since insiders own roughly 15% of the company, management has profited nicely from its rapid growth.

Ferguson insists that Newell can thrive without making another big acquisition. "We'll grow with our customers and rely on new products," he insists. In the works, for example, is a tamper-proof seal for baby-food containers that could generate annual sales of up to $30 million. But unless Ferguson lands Stanley or one of his other targets, the Newell earnings machine may be stuck in lower gear for a while.

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