Why would the acquisition of Plastico be good for JC?

Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household
items, cookware, and hardware. In the early 1950s, JC’s business consisted solely of manufactured
curtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however,
the company has diversified extensively through acquisition into such businesses as paintbrushes,
writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to these
many small acquisitions, whose performance it improved tremendously through aggressive
restructuring and its corporate emphasis on cost-cutting and cost controls. While JC’s sixteen
different lines of business may appear quite different, they all share the common characteristics of
being staple manufactured items and sold primarily through volume retail channels like Wal-Mart,
Target, and Kmart. JC operates each line of business autonomously (separate manufacturing, R&D,
and selling responsibilities for each line). The common linkages are both internal (accounting
systems, product merchandising skills, and acquisition competency) and external (distribution
channel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion
U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food
containers, and a broad range of other plastic storage containers designed for home and office use.
While Plastico has been highly innovative (over 80% of its growth has come from internal new
product development), it has had difficulty controlling costs and is losing ground against powerful
customers like Wal-Mart. JC believes that the market power it wields with retailers like Wal-Mart
will help it turn Plastico’s prospects around.
How might JC’s related diversification strategy result in economies of scope and market power?
Why would the acquisition of Plastico be good for JC?
What difficulties might you expect JC to encounter related to its acquisition of Plastico?

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