LOVELY PROFESSIONAL UNIOVERSITY

DEPARTMENT OF MANAGEMENT

In Partial Fulfilment Of Corporate Restructuring

On

Albert Dunlap and Corporate Transformation

Submitted To Mr.Ajay Chandel

Submitted By PVN Manikanth (11106544) Rajesh Singh (11105801) Dinesh Nigam (11103208) Neelesh Kumar Nag (11106511) Raj Ranjan Singh (11110971) Siraj (11110098)

Q1107

Background of Albert Dunlap: Albert J. Dunlap was born in 1937 and raised in Hoboken, New Jersey. He, belong to a Dirt-Poor working class family, where he had Zero privilege and fathers job losses which demonstrated with the personal hardships endured by victims of his cost-cutting lay-offs. His family was struggling lower-class family. Albert had created a self-servicing fiction and turned his back on both truth and family members. Al Dunlap had completed his graduation with the score 537 out of 550 in 1960 (west point). After graduation he served as a paratrooper and executive officer of a nuclear missile installation in Eastern Maryland. Al Dunlap credited military training and stated that I gained discipline, organizations skills, competition and leadership which was needed for a life in business.

Early Business career: Al Dunlap entered Kimberly-clark with a management training program and assigned to the companys plant in Neenah, Wisconsin. In span of 4 years he rose from superintendent to project leader (learned every phase of paper production and process R&D). Dunlap credited his boss Frank Nobbe, with his leadership practices that strongly influenced his own emerging management approach.

1966 Al was hired by Sterling paper as general superintendent at its plant located in Eau Claire, Wisconsin and was given a mandate to resolve a host of labour and operating problems. In a span of 10 years Al was credited with improving labour relations, cutting costs and boosting market share through new product development.

1977 Al Dunlap took a job in strategic planning at American can company in Greenwich, CT. (because Sterling sold the Eau Claire plant)

1981 Al was promoted to senior vice president of the performance plastics Division and became the member of the management executive committee.

1983 Kohlberg kraft, Roberts, a wall street investment firm specializing in leveraged buy-outs had purchased Lily-Tulip the 2nd largest paper cup manufacture in US, in 1982 for $180 million. To turn around this company (Lily-Tulip) KKR recruited Al Dunlap in 1983. In his first move Dunlap fired most senior managers and quickly embarked on a campaign to drastically cut headquarters staff and relocate HQ operations. In his next move he sold off several older plants, increased R&D spending and invested in automated equipment and introduced a new product line. In a span of 12 months Al turned company into profits.

1984

At the end of the year Al Dunlap had turned the loss company(Lily-Tulip) of $11million into a profit of $23 million profit, while reducing debt from $165 million to $43 million.

1986 Sir James Goldsmith, international business notorious for Hostile takeovers, hired Al Dunlap as CEO of Crown-Zellerbach. C-Z was an underperforming company with Timberlands, Pulp and paper plants, Oil and Gas resources. Again Al followed strategy of HQ relocation, staff cuts, and plant process investment, coupled with a revamped timber cutting strategy, which quickly boosted profits and earned Al Dunlap the opportunity to turn-around another of Goldsmiths forest products companies, Diamond International.

Scott Paper 1994 Lippincott left the company in 1994 and Scott recruited its first outsider to replace him. After building his reputation for reducing operations, cutting workforces, and dumping all but the most profitable divisions, Scott's new Chairman and Chief Executive Officer Al Dunlap had earned the less than affectionate moniker 'Chainsaw Al.' Despite the trail of unemployment he left in his wake, Dunlap was revered for his ability to return flailing companies to profitability and, more importantly, to raise share prices. Dunlap immediately got down to business at Scott. He 'has people jumping up and down. He is asking for all kinds of justification reports, analyses of what businesses the company should be in,' a Scott executive told Delaney Informed Communications on May 30, 1994. After filling top management positions with like-minded colleagues, Dunlap put S.D. Warren on the sales block. Although Warren had become the clear-cut leader in its field, the subsidiary did not conform to Dunlap's vision of a streamlined Scott with interests primarily in tissue paper. In August 1994, Scott announced it would fire 10,500 workers to save an estimated $400 million each year. Dunlap closed Scott's older, more costly, manufacturing plants; reduced warehouses from 60 to 19; and sold off the company's printing and writing paper production operations, Mexican joint ventures, health care and foodservice operations, as well as its energy operations. In his first nine months as CEO, Dunlap divested over $2 billion worth of assets. Scott's share price rose from $37.35 to $84.62--an increase of 225 percent in 18 months. Scott reported a $200 million profit in 1994, compared to the net loss of $277 million recorded in 1993.

1995 Many analysts had speculated that Dunlap's underlying goal was to make Scott an attractive acquisition target. Such suspicions were fuelled in July 1995 when Wayne Sanders, the chairman and CEO of Kimberly-Clark, confirmed that Kimberly-Clark and Scott had signed a merger agreement. The deal, which would create a $13 billion consumer products behemoth, offered Kimberly-Clark clear advantages. Kimberly-Clark could use Scott's dominance in the tissue sector, especially in the crucial mid-level segment, as part of its bid to overtake Procter & Gamble. Moreover, Scott had a powerful European division, with best-selling brands such as the U.K.'s Andrex. Kimberly-Clark, on the other hand, had not been as successful in entering European markets. The merger was finalized on December 12, 1995. After the merger was complete, an 'Integration Team' formulated a plan to unite the two companies' manufacturing operations, product lines, and workforces.

More layoffs were enacted, and Scott's headquarters, as well as some office facilities, were closed. Kimberly-Clark stockholders outnumbered those of Scott in the new corporate entity, so the unified company bore the Kimberly-Clark name, and all Scott assets were subsumed within Kimberly-Clark. Nevertheless, Kimberly-Clark kept alive most Scott brands. Not only were Scott's brands the best-selling in the world, but by retaining their cachet with consumers, Kimberly-Clark could also lay claim to Scott's rich and storied legacy

1995 SUNBEAM CORPORATION Internal Analysis Current mission of Al Dunlap is long-range objectives, strategies & performance. Albert Dunlap stepped in as CEO of the struggling appliance maker Sunbeam in July 1996

Strategies Implemented Al adapts a strategy to cut the company's costs by eliminating excessive staff, simplify the company's SKU system, divest unprofitable divisions and consolidate Headquarters as well as production facilities.

1997 His drastic restructuring strategy was clearly warranted and resulted in higher sales, significantly lower cost of goods sold and operating profits along with a steadily climbing Sunbeam stock price in 1997. Dunlap emphasized focusing on the core business, defined as "electronic appliances and appliance-related business," and promptly sold a number of divisions that were not closely related to the new Sunbeam's main line of business. A three-year business plan and strategies aimed to double sales to $2 million while increasing revenues and operating margins by 20% per year and increase ROE to 25%. On corporate governance level, Dunlap tends to surround himself with loyal executives from prior ventures. Dunlap quickly replaced all Sunbeam board members except one major shareholder (Franklin Resources with a 35% stake). This strategy may make it easier for Dunlap to get consensus for his viewpoints. Dunlap prefers a highly involved and vested Board of Directors, accomplished by requiring board members to invest a large portion of their personal wealth in Sunbeam stock. Another core belief of Dunlap's is that "the most important person in the company is the shareholder" and that the ultimate measure of a company's value is the share price of its stocks.

According to the securities markets, his strategies had been highly successful, as evidenced in a Sunbeam share price that quadrupled in just 18 months after Dunlap's CEO appointment. In late 1997, Dunlap decided that he would stay with Sunbeam "to build the company back up" instead of exiting yet another successful turnaround.

1998 For this new strategy he started seeking candidates for mergers and/or acquisitions that could add some synergy. Sunbeam's intent to acquire three companies (Coleman, Signature Brands and First Alert) simultaneously, announced on March 2, 1998

FUNCTIONAL ANALYSIS Financial In 1997 Sunbeam's overall financial situation was quite sound. Company was very troubled financially with huge operating losses in 1996. Sunbeam is once again profitable with net earnings near one-tenth of total sales (profit margin = 9.4%) and an ROE very close to Dunlap's target of 25% at 20.5%. In terms of leverage, Sunbeam uses debt financing to a somewhat higher degree than its competitors. But the company is still safely below the 1.0 ratio "threshold" with a .63 debt to equity ratio in 1997. Sunbeam's liquidity is very high, with recent current ratios ranging from 2.30 - 3.32, surpassing the rest of the industry in its ability to meet short-term financial obligations. The most important aspect of Sunbeam's financial situation, is how the company will be affected by the proposed acquisitions of Coleman Company, Signature Brands USA and First Alert. The March 2, 1998 stock price of $45.63 multiplied by the weighted average common shares outstanding of 87,542,000 indicates that Sunbeam's total value approximates $4 billion. Due to the dramatic fluctuations in Sunbeam's stock price, the same calculation for just a year prior yields a value of circa $1.9 billion, less than half of the above value. According to the financial data provided in the case, Sunbeam only had $52.3 million in cash and cash equivalents at the end of 1997, and it seemed unrealistic that the firm had accumulated an extra cash reserve $536 million in just a couple of months. Overall, from a financial standpoint, is does not seem wise for Sunbeam to assume such a large amount of additional debt while completely depleting itself of cash in order to finance the acquisition of three companies. Although the company's stock price kept increasing after the acquisition proposal was announced, the markets may simply be too focused on Al Dunlap's past successes, and when the fragile reality of these acquisitions hit investors, the Sunbeam stock may tumble downward rather quickly.

Production/Operations A1 Dunlap made drastic operational changes to Sunbeam while on his recent downsizing rampage, including cutting 50% of employees, closing 18 of 26 factories, 37 of 61 warehouses and 39 of 53 facilities, and eliminating 87% of the company's products. While this restructuring appear to have been successful, evidenced in higher revenues, a soaring stock price and healthy profits in 1997, it is really too early to declare Sunbeam a winner after just one good year until there is some evidence of positive long-term trends. As pointed the sweeping changes that included laying off 6,000 employees may have caused unrest among remaining employees that could hurt Sunbeam in the long run. This effect may be augmented if Dunlap uses similar restructuring approaches in each of the companies he is proposing to acquire. Additionally, Dunlap's tendency to locate manufacturing plants in lower wage locations and/or countries may not always result in optimal efficiency. It is important to evaluate facility locations on a number of factors, including experience of available workers, access to transportation links, local unemployment rates, prevalence of unions, etc.

Technology One of Sunbeam's core competencies lies in its strong warehousing and distribution capabilities, largely enabled by electronic data interchange (EDI) communication and just-in-time inventory (JIT) systems. Similar to the distribution efficiencies mentioned in the Marketing section, there could potentially be some synergies gained by integrating the proposed acquisitions into Sunbeam's existing inventory management information system. However, this potential integration may also raise a number of issues, such as which company's technology to use as well as the inherent complexities of combining several proprietary inventory and distribution systems into one.

Organizational With the notorious "Chainsaw Al" Dunlap at its reigns, aided by his handpicked management team and Board of Directors of faithful followers, Sunbeam is highly reliant on the quality of his subjective judgments. Although the fact that the board members have high stakes at risk by being heavily invested in company stock suggests that strategic moves will be carefully weighed by the Board, it does not appear to be questioning Dunlap's drastic proposal of a triple acquisition. Apparently, the rapid accumulation of shareholder wealth gains that Dunlop had generated had instilled a high level of trust in his fellow board members. Another factor behind the obliging attitude of company executive and board members may be that they are eying attractive lead positions at the companies that are acquisition candidates.

Consequences Company filed bankruptcy in February 2001. It was left with ASSET OF $2.96 BILLION AND LIABILITY OF $3.2 BILLION. Dunlap was banned and required to pay $500000 fine. In December 2002 company came with changed name as American Household . It is now acquired by Jarden in 2002.