Yesterday, The Wall Street Journal reported Jarden (JAH) and Newell Rubbermaid (NWL) are in talks to combine. And why not? Both companies have acquisitive histories, so any deal would make perfect sense. A combined company would have about $14 billion in annual sales.
Both stocks jumped on the news.
The two companies are deal machines. Newell-Rubbermaid has made 70 purchases in 30 years. Likewise, Jarden, founded in 2001, has acquired 11 major companies and now manufactures more than 120 brands.
The combined company would make a dizzying array of common household brands. It would be No. 1 in magic markers, boxed cutlery, baby strollers, playing cards, mason jars, toothpicks, activity-based adhesives, scented candles, fire logs, class rings, sleeping bags, hairbrushes, coffee makers, and baseball gloves -- just to name a few
While I'm sure Wall Street would celebrate a deal, it would not solve the fundamental problem facing both companies. It would not drive revenue growth. Jarden and Newell grow organic sales between 3.5% and 5% a year, if they are lucky. Without acquisitions there is very little to get excited about.
In my view, Newell has been the more innovative company. The Atlanta-based company is trying to drive revenue growth through new product introductions. For example, Newell just introduced a 2-in-1 stylus Paper Mate pen called the InkJoy. The pen allows you to write in ink and you can also use it as a stylus to draw on the screen of your tablet computer.
Dymo has introduced a new line of industrial labelers to simplify the most complex of labeling jobs. The new Graco Modes baby stroller accommodates five different ways for children to ride, while being able to be folded using just one hand.
Without any acquisitions, Jarden will likely grow revenue 4.5% this year to $8.6 billion and Newell just 3.3% to $5.9 billion. Newell has higher margins, however, at 39% vs. Jarden's 32%. Likewise, Newell's operating margins are about 3 points higher at 14%.
I'm sure there would be some cost savings to a potential combination, since many retailers carry a lot product from both companies. Things like shipping, distribution and warehousing seem like easy ways to save. The combined company could probably get better pricing from retailers, too.
Separately, Newell plans to save about $350 million by 2017 through supply-chain initiatives. If the company were to achieve those savings, combined with the cuts already put in place since 2010, Newell would have a cumulative savings of $620 million to $675 million.
To me, Newell's management team seems more aggressive in streamlining operations and introducing new products to drive growth. If the deal is actually completed, the combined company could be a strong performer, especially if Newell's management takes the helm.