Newell Brands Divestiture Explanation Is Lacking
(Bloomberg Gadfly) -- The past month has been rough for Newell Brands Inc.
First, the maker of Yankee Candle and Elmer's Glue unveiled a strategic plan that called for divesting some of its smaller businesses. Its shares -- which not long ago had been whacked by a lousy third-quarter earnings report -- promptly tanked again.
Then, activist investor Starboard Value LP decided to agitate for change at the company, putting up 10 nominees for its board of directors as it declared in a letter that the divestiture plan was "a hastily designed action to deflect blame from the recent poor performance."
Newell's earnings call on Friday was an ideal moment for executives to persuasively argue for their plan and for keeping the current board in place. Unfortunately for Newell, I don't think its leaders rose to the occasion.
To understand why Newell's latest moves are head-scratchers, it helps to rewind to late 2015. Back then, the company known as Newell Rubbermaid Inc. struck a deal to buy another consumer products giant, Jarden Corp., for about $15.4 billion.
It was a transformational tie-up: Newell had nearly $6 billion in annual revenue in 2015; adding Jarden more than doubled its revenue the following year.
You could easily see the rationale. By putting lines such as Calphalon and Crock-Pot under one roof, executives could cut costs and have more negotiating power against the likes of Walmart Inc., Target Corp. and others.
So why backpedal now by unloading a bunch of brands?
Executives on Friday framed the new plan as a continuation of a strategy of focusing more on consumer goods and moving away from industrial and commercial ones. But I am struggling to follow their logic. Yes, Newell is shopping brands in those categories, including packaging manufacturer Waddington. But it's also exploring strategic options for smaller consumer businesses such as Goody hair accessories and Rawlings sports gear.
That seems to reflect a change of course that hasn't been fully explained.
And CEO Michael Polk didn't have a particularly satisfying answer when an analyst asked him why the company was just realizing it should dump these brands now. After all, presumably Newell and Jarden did a top-to-bottom review of their portfolios before striking this deal.
The heart of Polk's response was, "What's changed is the retail environment."
That is certainly true, and surely a company that makes Graco strollers and NUK baby bottles is feeling some pain from the recent Toys "R" Us bankruptcy.
But let's be honest: Retail has been tumultuous for years now, with chains sinking or swimming based on their ability to adapt to e-commerce and millennials' shifting preferences. And Newell's portfolio is so varied -- including everything from Sharpie markers to Sunbeam appliances to Aerobed inflatable mattresses -- it should be somewhat protected from such shocks.
The strategy Newell laid out in January is nothing short of a major makeover. The company has said it would result in a 50 percent decrease in its factory and warehouse footprint and a 50 percent reduction in its customer base.
Newell owes shareholders a better explanation of the reasoning behind this decision. It's the best way to get them on board with its plans -- and convince them to reject Starboard's director candidates.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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