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Unlike Its Plastic, Rubbermaid's Glory Can't Last Forever

It took Wolfgang Schmitt five years to weaken a company that others spent decades building into one of America's most-admired corporations.

Under Schmitt's watch as chief executive of

Rubbermaid

(RBD)

beginning in late 1992, the Wooster, Ohio-based company has disappointed by almost every measure. Now Rubbermaid is selling itself to

Newell

(NWL) - Get Newell Brands Inc. (NWL) Report

. The purchase price was about $5.8 billion, or $38.68 a share -- not much more than the company was worth when Schmitt took charge -- but it has since fallen to about $34.98 a share because Newell's stock price has declined.

"You would've been better off buying T-bills five years ago than buying Rubbermaid," says Eric Bosshard, an analyst with

Midwest Research

in Cleveland, who rates Rubbermaid neutral. (His firm hasn't performed underwriting for the company.)

From January 1993 through September 1998, Rubbermaid lost 24% while the

S&P 500 Index

jumped 132%. Its earnings fell 32% from 1993 to 1997, and return on equity slipped from 18.9% to 13.8% during the same time.

Certainly Schmitt, who will become vice chairman of the combined company

Newell Rubbermaid

, faced stiff challenges when he took the reins of the rubber-product maker. The market for Rubbermaid's plastic storage bins and dust pans had drastically changed since the golden era of Stanley Gault, the revered

General Electric

(GE) - Get General Electric Company (GE) Report

manager who ran Rubbermaid in the '80s before retiring. In 1991, he was tapped to head

Goodyear Tire & Rubber

(GT) - Get Goodyear Tire & Rubber Company Report

, which he revived.

Prices for resin, a key raw material in plastic production, soared during Schmitt's tenure. And Rubbermaid, along with other manufacturers, lost pricing power as discounters like

Wal-Mart

(WMT) - Get Walmart Inc. Report

demanded better terms.

"We were caught in a vice between higher raw-material costs and a downward spiral in pricing," says Rubbermaid spokeswoman Lorrie Crum. "Anyone who wants to single out one individual for the external factors in the industry has their head in the sand."

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But some investors and analysts say Schmitt failed to react quickly enough to the changing marketplace.

"The company wasn't very responsive or inventive in what they needed to do," says Michael Hamilton, a portfolio manager with

Invista Capital Management

, which has been an investor in Rubbermaid for over 10 years. "They had too many units and too many different products, and they lost control of the brand and expenses. It comes back to management and how you alter a company to better compete."

Schmitt never tired of tinkering with Rubbermaid through one restructuring after another, none of which succeeded in sliming down the business fast or far enough. In the company's fiscal third quarter ended Oct. 2, earnings declined by 42% to $17.5 million, or 12 cents a share, compared with $30.1 million, or 20 cents a share, a year earlier. Excluding a $14.2 million restructuring charge, the company earned $31.7 million, or 21 cents a share, which fell well short of the 30 cents a share that a survey of

First Call

analysts had expected. Sales increased 8% to $628.6 million compared with $583.3 million last year.

Under Schmitt's tenure, turnover increased sharply. His autocratic style created a tense environment where managers feared making mistakes. "Everyone was focused on avoiding his wrath," says a former manager, who asked not to be named. "He destabilized the company and surrounded himself with Yes people. All the entrepreneurial spirit left."

That's an ironic turn for a company that was founded by entrepreneurs in 1920. Thriving through World War II,

Wooster Rubber

went public in 1955 and changed its name to Rubbermaid two years later. It saw sales and earnings grow steadily through the '60s and '70s under CEO Don Noble, who started with Rubbermaid in 1941 as a temporary associate. Under Gault, Rubbermaid reached $1 billion in sales. But soon after he left in 1991, the company's fortunes turned.

Its next chief executive, Walt Williams, quit after just 18 months, which led to Schmitt's promotion. Even a timeline on the company's

Web site

ends two years ago.

A contender in

Fortune

magazine's list of most-admired companies for several issues, Rubbermaid was ranked No. 1 the year Schmitt became chairman. (The company slipped from the top 10 in 1997.) With even grander plans in mind, Schmitt set ambitious goals to increase the company's sales to $4 billion and become a global enterprise -- neither of which has panned out. Last year, Rubbermaid had sales of $2.4 billion, and its international effort has made little progress toward Schmitt's objective of accounting for 30% of the company's sales by 2000. In 1997, international sales were just 19.5% of the company's total, up from 18% two years earlier.

His ideas found a rapt audience in the company's board of directors, who gave him free reign. "Wolf was very good at catering to the board," says the former employee. "He always had a ready answer for why things weren't working." But boards are responsible to shareholders, not to CEOs. And in that capacity, by some investors' opinions, the board failed to do its job. "Companies have a tendency to delude themselves," says Hamilton, the investor.

Like other investors who pushed Rubbermaid shares up 24% to 32 the day the deal was announced, Hamilton is pleased with the sale given the alternative. "It beats a stick in the eye," he says. Thursday shares gained 3/4 to 32 3/4.

But to residents of Wooster, a town of 25,000 people where Rubbermaid is one of the largest employers, the change in ownership is unsettling. There's pride in plastic here where an

Everything Rubbermaid

store occupies 20,000 square feet downtown. And why not? Rubbermaid's been a model corporate citizen, building the

Wayne Center for the Arts

and buying land for a public high school. While Rubbermaid has said that only about 100 corporate executives will move to Newell's headquarters in Freeport, Ill., there are concerns about how those relocations will shrink the community's tax base.

"We've depended on these people," says Sandra Hull, executive director of

Main Street Wooster

, an economic development organization. "We have no concept of what this will truly mean to the town."

Perhaps most painfully, the change in ownership leaves a bitter taste for those who spent their lives building the company. Noble, the former CEO who still keeps an office at Rubbermaid headquarters, laments: "I'm sad because we worked so very hard to keep Rubbermaid independent."