In 2000 Black & Decker Corporation was still struggling to get out from under the array of financial and strategic problems stemming from the company’s $2. 8 billion acquisition of Emhart Corp. in 1989. Black & Decker had long been the world’s leading producer and marketer of power tools and power tool accessories. But it had begun a program of diversification in the 1980s that had produced mixed results for shareholders.
The company’s foray into small household appliances had been a success originally but the small appliance division acquired from General Electric in the early 1980s had recently been divested because of its drag on B&D’s growth. The company’s follow-on acquisition of Emhart, a conglomerate with very diverse business interests, had proved to be a significant impairment to the company’s earnings and cash flow as well as a management burden, and during the past eleven years Black & Decker had achieved success in only a few of the many different and largely unrelated businesses it obtained in the Emhart acquisition.
In 2000 the Black & Decker Corporation considered itself to be a diversified global manufacturer and marketer of household, commercial, and industrial products. Black & Decker was the world’s largest producer of power tools, power tool accessories, security hardware, and electric lawn and garden products. The company’s Price Pfister kitchen and bathroom faucets business unit was the third largest manufacturer and marketer of plumbing fixtures in North America and had gained market share every year since the Emhart acquisition. Black & Decker was also the worldwide leader in certain types of mechanical fastening systems.
Between 1910 and 1984 Black & Decker pursued a single-business strategy, establishing itself as the dominant name in power tools and accessories, first in the United States and then across a broad global front but particularly in Europe. Growth was achieved by adding to its lineup of power tools and accessories and by increasing its penetration of more and more foreign markets. When the company ran up against maturing demand for power tools in the early 1980s, management launched a diversification strategy. In 1984, Black & Decker acquired General Electric’s housewares business for $300 million.
GE’s brands had about a 25 percent share of the small-appliance market and generated annual revenues of about $500 million. GE’s strong suit was in irons and toaster ovens where its share was close to 50 percent; sales of GE irons totaled about $250 million. Among the other 150 GE products acquired by Black & Decker were coffee makers, hair dryers and hair curlers, food mixers and processors, toasters, electric skillets, can openers, waffle irons, and blenders. In March 1989, after two previous failed acquisition attempts, Black & Decker agreed to acquire Emhart Corporation for $2.
8 billion, rescuing the firm from a hostile takeover bid. Emhart was a diversified manufacturer of industrial products (1988 sales of $1. 6 billion), information and electronic systems (1988 sales of $654 million), and consumer products (1988 sales of $547 million). Approximately 40 percent of Emhart’s sales and earnings came from foreign operations, the majority of which were concentrated in Europe. Emhart had 1988 sales of $2. 76 billion compared to sales of only $2. 3 billion for Black & Decker. B&D had to secure $2. 7 billion in financing to acquire Emhart.
Black & Decker has now spent the next 11 years struggling to get out from under the debt burden of the Emhart acquisition and to get its business portfolio in shape. Note Correction: Table one column one is 1986 Note Correction: Table 4 indicates competitive key factors not Industry Attractiveness QUESTION 1: Comment on the diversification strategy that Black and Decker is using. Some comment on the diversification strategy that Black and Decker is using : oThey have chosen somewhat related ventures, such as the household appliances division from General Electric.
Their Emhart acquisiton was less closely related since Emhart is involved in many different industries. oThey have pursued a global strategy with a particular emphasis on consolidating their hold in Europe. They bought Emhart because, 40% of its $2. 76bn came from foreign operations mostly in Europe. o Emhart has proven to be a significant impairment to the company earnings and cash flow. QUESTION 2: What are the strategic fits between B&D’s various units? Use the value chain to explain the answer.
The strategic fits between B&D’s various units is diversity into related businesses because cross business strategic fits can exist anywhere along the value chain : oStrategic fits in R&D and Technology Activities; there are potential for sharing common technology ,business with technology sharing benefits can perform better together than apart because of potential cost saving in R&D , also potentially shorter times, technological advances can lead to increase the sales. oStrategic fits in supply chain activities: Black and Decker is compatible with General Electric and some of Emhart’s divisions.
Black & Decker along with GE both produce small appliances with and small engines that often go well together technologically and use similar materials. oManufacturing related strategies: Many of the plants and facilities that serve B & D can easily be adapted to use with GE and Emhart. Many GE products can easily be produced at B&D facilities. Emhart’s deep operations in Europe means they will give B&D access to facilities in Europe. oDistribution related strategies: B&D and General Electric are closely related so they have been able to cut costs by using the same wholesale distributors and retail dealers.
Emhart is good also because, they are a global brand and will give B&D some distributive advantage. Black and Decker Corporation have many kinds of product which includes: oPower tools, power tools accessories oSecurity hardware oEcectric lawn and garden products QUESTION 3: Using the Industry Attractiveness and Competitive Strength tables, develop a GE matrix. Comment on the goodness of portfolio. Which companies are stars/winners, which are cash cows, which are cash hogs and which are dogs/losers? Does B&D have a good portfolio?
QUESTION 4: What would be the investment priorities for B&D? Rank the business units in importance of investment. Make sure you use the value chain, financials and GE matrix to give the answer. QUESTION 5: What corporate strategies would you suggest for each of the business unit that is on the GE matrix? 5. for the the each of these companies , we suggest : •Power tool and accessories: should follow a diversification strategy. It would be heplful if they did concentric diversification. •Housewares: they should concentrate on growth especially increasing their market share.
•Security hardware: should try to diversify their holding but again it should be concentric diversification. •Fasteners: they need to turnaround some of their operations especially the marketing and distribution also the profit margins. •Plumbing products: they need to concentrate on internal growth especially since their market share and profits are low. If need be they should be divested if they cant turn things around because they have no strategic fits either. •Outdoor Rec. Products: they should diversify into any other concentration close to their industry.