March 18, 2019

Breakingviews: Newell needs a breakup more than a CEO

by Breakingviews.

Newell Brands investors finally have something to cheer about. Michael Polk is retiring after an eight-year orgy of wheeling and dealing at the maker of Sharpie pens and Crock-Pots. His 2016 acquisition of Jarden incinerated $10 billion of shareholder value. The company has stepped up asset sales under pressure from Carl Icahn, but a full breakup would make more sense.

A onetime curtain-rod manufacturer, Newell transformed itself into a consumer-products mini-mall by acquiring brands ranging from Rubbermaid to Graco strollers to Calphalon pots. Polk put that model on steroids with the $15 billion purchase of rival brand rollup Jarden. The timing was as bad as the logic was faulty.

Polk told shareholders the deal would create cross-selling opportunities and give the enlarged company greater clout with stores and suppliers. Instead, it saddled the company with an unwieldy array of factories and warehouses, and there were never any real synergies between the Jostens school rings and Rawlings sporting goods sold by Jarden and Newell’s household products. Polk also didn’t count on the disruption of retailing – the bankruptcy of Toys R Us hammered Graco’s sales, for instance.

The toll has been painful. The company posted a $6.9 billion loss last year after writing down the value of its brands. Anyone who has held on to the stock since the Jarden deal has lost over 60 percent of their investment, including dividends, compared with a gain of 43 percent for the S&P 500 Index over the same period.

Newell has been flogging off brands since giving directors’ seats to Icahn and activist Starboard Value last year to settle a proxy fight. Polk expects to raise a total of $9 billion from such sales by the end of this year, which should bring leverage down from the current level of nearly six times expected EBITDA, according to Refinitiv data.

That will make Newell more manageable, but it won’t really improve the rationale for holding such a wide array of brands – or do much to juice lackluster underlying operating margins of 11 percent. Breaking up may be hard to do, but it’s the logical end to this corporate story.


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