(Bloomberg) -- It's a good thing that Newell Brands Inc. was able to end its proxy fight with Starboard Value LP in April, concluding months of harsh public criticism and distraction for the corporate parent of brands such as Yankee Candle and Coleman coolers.
But I suspect the sense of relief for CEO Mike Polk was only temporary because now he has to prove the transformation plan he fought to preserve is going to work.
Fortunately for Polk, he just took an important step in that direction. Newell announced on Friday that it had agreed to sell the Waddington Group, a packaging products manufacturer, to Novolex Holdings LLC for $2.3 billion.
The deal shouldn’t surprise investors. When Newell pledged in January to explore strategic options for some of its brands in an effort to become a significantly smaller, more efficient company, Waddington was on the list of those it was looking to unload.
And more broadly, the company has said it is particularly focused on shedding some of its more industrial and commercial brands, and Waddington fits that description.
It matters that Polk was able to start delivering on his plans. If he hadn't come to investors with this M&A red meat Friday morning, I suspect it would have set off some serious concerns about the turnaround strategy. That would be a loss of confidence that Newell can ill afford. Investors had been souring on Newell well before it announced in January that it planned to drastically slash its manufacturing base and customer base.
And Newell's first-quarter earnings didn't do much to hint that the beleaguered company is gaining strength. Net sales fell 7.6 percent compared with those a year earlier as it dealt with the liquidation of Toys "R" Us Inc. and inventory reduction at big-box office supply stores.
Beside the Waddington deal, one other small detail jumped out in Newell's press release on Friday. The company said that after it completes this wave of divestitures, it expects about half of its portfolio to be legacy Newell brands and half will be those it nabbed in its acquisition of Jarden Corp. As I've noted previously, I was puzzled by why Newell suddenly thought it was the right idea to become a much smaller company so soon after it bulked up by acquiring Jarden.
That the Jarden portfolio will still live on as a significant part of this business after this round of sales gives me more confidence that the $15.4-billion deal wasn't pointless.
I'm still not entirely sold on Polk's vision. Friday's press release said that all after-tax proceeds from the divestitures — which it expects to be around $10 billion — are to be used for share buybacks and paying down debt.
The latter part of that strategy is a sensible one, given that Newell's debt exploded in the year it bought Jarden.
But I question the decision to plow the rest of the cash into share repurchases. For any consumer company, now is a critically important time to invest in product innovation that will help win market share and to figure out how to adapt to the rise of e-commerce.
I know that Newell is already working on those things, but I suspect the company would be well-served by throwing more resources at the challenge.
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