Reference no: EM132814631

Question - Consider the acquisition of Anchor Hocking as described below -Newell purchase of Anchor Hocking, a manufacturer of glassware and cabinet hardware, in 1987. Although Anchor Hocking had sales of $757 million in 1986, compared with Newell's $350 million, Newell targeted it for takeover on the basis of its own vastly stronger profit performance. At the time, Newell was enjoying an 11% profit margin, compared with Anchor's 0.5% margin. Newell management dismissed high-level Anchor executives, including the chairman; reduced the total number of employees from 10,400 to about 9,000; and closed one of three glass factories and the company's 25 retail stores. They also slashed excess inventory and eliminated 40% of Anchor's glass product lines by year end, saving $32.4 million in costs. An additional $12 million was saved by centralizing Anchor Hocking's administrative, financial, and computer functions under one roof at Newell's administrative headquarters in Freeport. Finally, Newell reduced the average length of time needed to fill a customer order from 18 to 7 days.

Further consider that prior to the acquisition, the sales of Anchor Hocking were $757 million, the existing profit margin of Anchor Hocking was 0.5%, and Newell's own profit margin was 11% (as opposed to operating profit targets discussed elsewhere). Finally, note that Newell reduced two core cost items by $12 million and $32.4 million. Let's also assume that the workforce reduction resulted in eliminated costs of $20,000 for each of the 1,400 employees let go, and the reduction of product lines reduced the original costs by another 5% but had no impact on sales. With these changes what would the new profit margin be for the acquired firm?

A) 15.0%

B) 6.9%

C) 11.3%

D) 6.4%