Waterford Wedgwood Plc (2000): The Millennium
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Waterford Wedgwood plc (2000): The Millennium
Waterford Wedgwood was founded in 1987 following the merger of Waterford Crystal and Josiah Wedgwood and Sons Ltd. The deal brought together two companies with long histories of dominance in their respective market segments.
We find the company in 1999 at the crossroads of the millennium. Our task is to examine its position in the marketplace, and where it should go from here. In order to decide how WW should go forward, it will be helpful to look at where it has come from.
Waterford Crystal was founded in 1783 by George and William Penrose in the port city of Waterford, Ireland. They combined the perfect mixture of minerals and glass to produce fine crystal that was distinguished by its rich sparkle and high level of craftsmanship. Despite having a quality product and recognition in the marketplace, the company hit hard times. A depressed economy and a heavy tax burden forced it to close in 1851.
The name lay dormant for 100 years until 1947, when a group of businessmen saw the potential of once again creating a world-class crystal maker. The company launched its products on the world market and by the 1980’s Waterford Crystal was the largest producer of handcrafted crystal in the world.
Wedgwood fine china has a similarly long pedigree. It was founded by Josiah Wedgwood and has been making fine bone china in Stoke-on-Trent, England for over 250 years. The company is steeped in English tradition and describes the essence of its brand as: “Authentic English Style.” As with many mergers the partnership of the two companies was not a smooth one and the first few years were unsettled.
In 1990, a new group of investors, headed by Tony O’Reilly came onboard buying up 30% of the stock. They didn’t arrive a moment too soon. O’Reilly, then head of the Heinz food conglomerate, saw success by revamping the company’s products and creating a world class luxury goods company. At the time, the company faced the following challenges: they were burdened by a debt of $200 million, they had a militant workforce, a history of mismanagement, and losses of $128 million the previous year, 1989.
O’Reillys influence over the next few years turned the company around.
Fast forward to 1995: costs are brought under control through clever negotiations with the labor unions and capital investment, debt is reduced to $70 million and operating profit is up for the third year in a row.
Waterford Wedgwood marches forward and acquires Rosenthal, a German ceramics company, in 1997. Note the strategy here. There is a common theme in the acquisitions being made. The products are different but the category is similar. They are all in the tableware/giftware field. The group continues the trend in 1999 with the acquisition of All-clad, a high-end cookware manufacturer, with plants in Pittsburgh PA. Clearly management is hoping to create synergy between the various branches of the organization.
They appear to be having success. At the time the case is written, Waterford Wedgwood can boast the following: group profit margins have increased for 4 years in a row, they are the leading manufacturer of crystal giftware with 90% brand recognition among consumers, the company has captured 40% of the US crystal market up from 23% in 1991, and they are one of the 10 most respected brands in the US according to an Equitrend survey. They were also heading for the advertising coup of the century with The Waterford crystal Millennium Ball due to be seen by over a billion TV viewers on New Years Eve.
All seems rosy, right? Well not exactly, there are some troubling trends emerging in the financial numbers that will be revealed later. First we will take a closer look at the external environment that the company operates in. Examining the economic environment and financial market, both opportunities and threats were abundant in the 1999 United States, Japanese and European markets. The U.S economy was at a 10-year peak, posting a GDP growth percentage of 4.5% (Keizai 1). The European Union also experienced a healthy boost in GDP, with a 3.2% average increase among the 15 countries that embody the EU (Annex 2). Some of this growth is attributed to the dramatic rise of the U.S.’s Dow Jones average and the success of Japan’s stock market, the Nikkei 225. On March 29, 1999 the Dow Jones Industrial Average jumped over the 10,000 mark, a first since its creation (Cool Fire 1). In similar fashion, the Nikkei 225 posted a 41% increase over 1998’s closing level (Reuters 1).
Unfortunately, Japan did not experience the same level of economic growth in 1999. While the U.S. and European Union economies flourished, the Japanese economy remained stagnant, with a .1% increase in its GDP.