Black&Decker Corporation Essay

inexorable & Decker was incorporated in 1910. Begun by Duncan dismal and Alonzo Decker, benighted & Deckers counter labyrinthine sense personnel besidesl was an electric practise in 1916. They went on to develop and offer the first portable screwdriver, electric hammer, as well as finishing sanders and jigsaws all the way up to the tremendously successful dust buster in 1978. Over the adjacent 70 years, the comp both established itself as dominant name in power tool and accessories, first in the United States and then accros 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(prenominal) and more foreign martsSymptons, Issues and ProblemsIssues in this case is diversification system runned by dusky & Decker breadbasket. As a diversified global manu eventurer and marketer of household, commercial, and industrial product, wispy & Decker need to develop and c hoose the right strategy for diversification.This case particularly discuss diversification of downhearted & Decker corporation during late 1980s to early 1990s, where relentless & Decker which is established as dominant name in power tools and accessories, began to pursue diversification. It is because the continuing maturity of its core power tools tune.During the 1980s Black and Decker had established themselves as a leader in the power tool industry. However, they were feels that the market for such tools was maturing to the point where expansion inwardly the industry would take into account little or no special revenues so they clear-cut to diversify.Black and Decker began their expansion operation by acquiring General Electrics housewares business, the leader in the industry, for $300 one million million in 1984. The success of the GE deal, and the reorganization efforts of their new chief operating officer Nolan Archibald, led Black and Decker to continue on this pa th of sciences and diversification in other areas. Then, motley acquisitions and acquisition attemp make by Black & Decker in their strategy to diversified. just the biggest and most noticed was the acquisition of Emrat Corporation, a diversified manufacturer of industrial product, for a $2.8 billion in March 1988. This steps is considered to be very bad decisions made by Black & Decker.AnalysisChange in strategyIn the mid 1980s, Black & Decker feels that the power tool market had matured to the point where there is no much room for further harvest-festival. Black & Decker then decided to change their corporate strategy from single business firm into diversified company.In 1984 they began to diversify. First they attempt to get into the small household appliance market. Rather than create their own line, Black & Decker decided to ingest General Electrics unit of household appliances for $300 million. Although it was a small part of GEs company, it held more market share than o ther houseware distributors (25 percent of the market and the leadership position). That acquisition gives an additional $500 million a year in revenue for Black & Decker because it was able to offer products wish well irons, coffee makers and toasterswhich.This began a trend of acquisitions by Black and Decker expanding into various related and unrelated markets with varying levels of success. This various acquisitions allowed Black & Decker to offer even more new products such as portable woodworking tools and watertighter drill bits. After all the new changes, Black & Decker Manufacturing Company also changed its name to Black & Decker Corporation to supporter market those changesThe successful story of GEs household appliance division acquisition in 1988, has triggered Black & Decker to tried again. Only this time the company of interest was American measure Inc. American Standard had an impressive $127 million profit in 1987, which towered above the mere $70 million for Blac k & Decker. But then, the acquisition was unsuccessful.The Emhart acquisitionsThe failed attempts by Black & Decker in 1988 did not stop Black & Decker moves to acquiring other company. In 1989, Black & Decker acquiring Emhart for the price of $2.8 billion, a price that 33% reward everywhere Emharts preannouncement value. This acquisition whitethorn not have been the best move for Black & Decker because its stock price dropped 15 points later on the announcement of the acquisition. After difficult negotiation of exactly how the acquisition would occur, Black & Decker decided to pay for Emhart for the next 48 years.The deal put down over $2 billion in goodwill on Black & Deckers books and increased debt to over $4 billion just before the credit markets were about to keep down severely. With the exception of a few businesses like Price Pfister faucets and Kwikset locks, which represented just $600 million in sales, Emhart made no sense for Black & Decker. Several of its subsidia ries were quickly placed on the block.But then curtly the economy became sluggish and the market slowed down, Black & Decker stock slumped from a pre-acquisition $25 to $8 per share. Archibald (Black & Deckers CEO at that time) had to scramble to keep the company solvent. Archibalds plan was to sell off about $1.8 billion of Emhart assets to pay down debt while merging the companys line of Kwikset locks and Price Pfister Inc. plumbing fixtures with Black & Deckers offerings. According to Archibald, the plan would have been successful enough under normal economic conditions. However, he failed to sell the Emhart businesses for the set prices leaving a long term debt of a hefty $3 billon and yearbook interest payments of more than $300 million.Black & Decker initially sold $1 billion in Emhart assets to pull down the interest costs. It met this demand by selling whole divisions of Emhart and also by selling equipment and other assets. By 1991, Black & Decker reduced the debt acquir ed by more than 25%. From 1993 to 1996, Black & Decker sold off tether segments of Emhart that did not prove to be strategic parts of the acquisition. By 1997, Black & Decker was able to meet its liquidity requirements and precaution chose to amortize the costs on a straight-line basis for the next 40 years.This shows that the acquisition of Emhart Corporation is a Black & Deckers bad move. Black & Deckers decision to acquire a company that was larger than $2.3 billion (revenues) Black & Decker itself, (the Emhart Corporation were $2.7 billion in revenues), was too risky and apparently Archibald didnt too conscious(predicate) about it.The purchase and acquisition of Emhart had proven a lack in the synergism inevitable to make such purchases profitable. Also the company had not been able to reduce its amount of debt (primarily from the purchase of Emhart) over the subsequent 10 years. Archibald made poor decisions in the Emhart acquisition, which impacted its profit margin, low ered its competitive advantage, and killed any chance of creating above-average returns.There are things that has to be done in order to ascertain whether the acquisition may create value for the shareholders, which is the CEOs primary responsibility. Effort should have concentrated on three essential tests The attractiveness test.The industries chosen for diversification must be structurally attractive or overt of being made attractive. The cost-of-entry test.The cost of entry must not capitalize all the future profits. The better-off test. either the new unit must gain competitive advantage from its link with the corporation or vice-versa. admit the point that the purchase provided some benefits, such as increased market share and well-known consumer brands, the cost-ofentry and better-off tests provide evidence that the Emhart purchase was very risky.Black & Decker SWOT AnalysisStrengths Brand recognition is a strong attribute for Black and Decker. Black and Decker has a reputa tion for producing electrical engines, power tools and appliances. Black and Decker produce a variety of products in its respected industry, and it is involved in constant research and development (e.g., developing cordless appliances and tools, rechargeable batteries that are compatible with both tools and small appliances). Black and Decker have penetrated the market causing it to dwarf market share in the industry.Weaknesses Black and Deckers reputation for quality tools and appliances has been decreasing. This was likely due to the fact that Black and Decker was busy dealing with its non-strategic businesses.Opportunities Opportunities to gain more market share by sponsoring home advancement shows. Gain more market share with industrial market, by offering quantity-based deals and advertising the quality of its products.Threats Sears is the strongest rival in the power tools division with 13.4 percent of the US market share. Black and Decker needs to be aware of new items tha t theconsumer can use and develop them before their competitors.Conclusion and RecommendationWhen an industry became mature and not offered enough room for further outgrowth, it is important for a company to change their strategy to keep festering continuously. This is what Black & Decker did, although being a dominant player in power tools and accessories for many years, Black & Decker realize the industry is being mature, so they decided to change their strategy into a diversified company.To be successful, a diversified company should have a portfolio of product with different growth rates and different market shares. The portfolio composition is a function of the balance between cash flows. High-growth product, that important for company to keep growth in the future, need lot of cash inputs. Low-growth product, product that already in maturity growth, should generate cash. How to balance between this two is the most important things in managing multi-business (diversified) com pany.The Emhart acquisitions is an example of bad acquisitions from Black & Decker in their strategy to diversified. There can be many reasons that an acquisition strategy fails to earn its cost of capital. An acquirer may have no real strategy to begin with and thus pay an unjustified acquisition premium right from the beginning. Or there may be a complete failure in capital punishment a fundamentally sound strategy. One major risk in acquisitions is the failure to close the happy chance that may exist between the strategic objectives and organizational design of the new organization and those of the old. Issues such as new information systems and channels, management succession, new decision rights, and incentive systems must be planned guardedly in light of where competitive performance gains are expected to result.This case is also an example of the problems where mismanaged growth can bring diversification away from core businesses and core competencies rarely creates value for the shareholders. High leveraged acquisitions put the firm at high financial risks, particularly when the firms products depend on business cycles. Shocks to the economy may result in insolvency and possible failure. The company may have to sell assets at low prices to meet debt obligations. As financial markets become more and more sophisticated, investors may diversify more easily, thereby making corporate diversification less attractive. Firms must continue to strengthen their core competencies and save their competitive advantages.In conclusion, the fundamental reason for the failed acquisition is due to lack of long term planning, divination and predicting of the return on investment relative to cost. The highly leveraged acquisition of Emhart placed Black & Decker at higher financial risks, primarily when the firms products depended on business cycles. As result of the inherited debt and the unforeseen market fluctuations and weak economy may result in collapse or poss ible bankruptcy of the corporation. Black & Decker Executives lack of strategic direction and poor application of funds may lead the corporation to sell of assets at low prices or lay off employee to meet debt obligations.Our recommendation for this case is, Black & Decker should stick with its original vision that includes the consolidation of their portfolio. The company should continue in investing in, and strengthening, its core products indoors its existing portfolio, so that these products will generate cash flow that will enable the company to stake upon expansion opportunities.In the future, Black & Decker should consider international companies with strong recognition in the countries that they plan on expanding into, considering either acquisition, merger, or creating a joint venture. The affiliation between Black & Decker and these companies must create synergy in order to justify such deliberate moves and expansions. These planned executive decisions and actions will h elp Black & Decker to obtain competitive advantages which will result in aboveaverage returns, leading to greater investor wealth and value to its employees.