Johnson & Johnson: Huggies Acquisition

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Issues
Conclusion
References

Introduction

While Johnson and Johnson (J&J) was interested in acquiring the Huggies brand, after further analysis and consideration, it has been found that there were unforeseen flaws in the strategic planning for this supposedly successful acquisition. Such a business venture would likely be unsuccessful as the Huggies brand is experiencing negativity in the marketplace. As Huggies is having experiences not predicted in previous models which are not profitable, the company is rethinking its decision.

J&J previously was interested in acquiring the Huggies brand to create a new brand line, “Baby Care.” This would have combined all the scattered baby products lines into one branch while adding a new product manufacturing effort. Currently, Huggies is built into such a branch under its current ownership by Kimberly-Clark, and J&J was going to simply assume this role in its own way to increase organization while gaining a profit. However, this organization is now estimated to come at a price as Huggies is experiencing losses in which there is no foreseeable recovery. As such, the initial benefits are foreseen to gain J&J greater financial resources, deeper penetration into the market, and a wide variety of products would only be partially realized as the company would gain the relations benefits while taking on a financial burden as well. As J&J is not in need of any investments due to its current level of success, the benefits of acquiring Huggies at this point would not outweigh the negative aspects. The main goal of J&J was financial resources, prioritized over the other benefits, and as such the idea must be reconsidered (Beyers, 2009; Hitt, 2009; McIntyre, 2009).

Issues

Initially, the company’s strategic plan was to acquired manufacturing rights for Johnson and Johnson plants by 2014. In the meantime, manufacturing would have continued in Australia. While this would still be the best method for a transfer, the reported losses show there is less to be gained both before and following the transfer of the right. In recent months the stocks have fallen by 5.3% and are not projected to recover. While the total Huggies sales were relatively high in 2008, these numbers are not as attractive as the new first-quarter losses seen this year. It would appear that the economic conditions are finally revealing a strain that was apparently avoided by the Kimberly-Clark brand.

While the profit from Huggies was $3250 million, an offer nearing 5 times the profit was considered reasonable and willing to be approved via debt financing, however, the dollar’s economic value is reshaping the brand’s conditions entirely, and strategically it would be best for Johnson and Johnson to value its current assets and not take any risky moves during such a powerful recession (Beyers, 2009; Hitt, 2009). While the company would still do well to organize its non-categorized product lines, making a large investment, especially during a recession, of a company that is now reporting losses would be a most unwise move. Although it may still be very well possible that Huggies fully recovers from this loss and would have supplied Johnson and Johnson with the gains it expected to obtain, the consequences of losing in the event this does not happy would be greater. In short, it would be better if Johnson and Johnson preferred to be “safe rather than sorry” (McIntyre, 2009; Verekcy, 2009).

After acquiring Huggies, the revenue and cost of sales were expected to increase by 22% and 21% (respectively,) based on the forecasted revenue of $119,218 million and COS of $27,125 million as mentioned in the previous strategic outline. However, we must now consider the most recent statistics as reported by Huggies and ultimately withdraw the decision to move forward. The first-quarter profit has dropped 8%. The effect of the stronger dollar is having a negative impact. Wall Street ultimately expected this, which does not suggest a positive future within any desired time frame. Kimberly-Clark was once thought to be able to maintain its resilience throughout the recession, however, consumer reports are revealing an increase in consumers shifting brand names to generic versions, and this is finally having a significant negative impact on brands such as Huggies. As the recession has no foreseeable end, this marketing trend is expected to maintain itself with currently acting consumers while spreading to new ones, thus making the decrease and overall effect worse. The effect of the strengthening of the dollar also apparently will not end soon. Furthermore, Kimberly-Clark reported it will be cutting jobs in the second and third quarters. They also reported their own prediction of falling revenue (Verecky, 2009).

Conclusion

While the consumer trends and resilience to the economy seemed to not affect Kimberly-Clark and thus making Huggies an ideal choice for acquisition, the most recent reports show this effect is in fact taking place. The timing for this, although late in the planning and strategic efforts, luckily appeared before action was taken. Johnson and Johnson can name avoid taking a loss due to an unsuccessful attempt to make a profitable acquisition.

References

Beyers, T. (2009). Fool Fight: Johnson & Johnson vs. Procter & Gamble. The Motley Fool.

Hitt, M. et al (2009). Strategic management: Competitiveness and Globalization (Concepts & Cases.) South-Western Cengage Learning.

McIntyre, D. (2009). Buffett moves out of J&J (JNJ) and Procter & Gamble (PG). Blogging Stocks.

Verecky, B. (2009). Kimberly-Clark 1Q profit falls but meets Street. Associated Press.

Click Here To Order Now!

Johnson & Johnson: Huggies Acquisition

Do you need this or any other assignment done for you from scratch?

We have qualified writers to help you.

We assure you a quality paper that is 100% free from plagiarism and AI.

You can choose either format of your choice ( Apa, Mla, Havard, Chicago, or any other)