Newell Brands and Uncle Carl

I have been following the Newell Brands (“NWL”) saga for a few months.  I was hoping to write a post at some point discussing a purchase of stock, where I would be teaming up with Carl Icahn (“Uncle Carl”)(regrettably I am sure, no relation), Martin Franklin and the Jarden gang, and Starboard Value/Jeffrey Smith/Jeffrey Smith’s hair stylist.

It seems, however, that dream is not to be.  For those who have not been following the saga.  NWL owns a bunch of household brands, like Mr. Coffee, Graco, Nuk, Yankee Candle, Ball (jars), Elmer’s (glue and slime), Crock Pot, Bicycle playing cards, etc….

About two years ago, Newell Rubbermaid, paid UP for Martin Franklin’s (he had some other key guys he worked with) Jarden group.  Until it was sold, Jarden’s performance was phenomenal.  In my opinion, Franklin was just another smart bloke executing a well-worn playbook.  Jarden started as the former spin-off of Ball Corporation (canning jars) and Franklin built it up and sold it to these Newell guys for $15 billion in December, 2015 via decentralized management combined with accountability and rational capital allocation.

I have followed Franklin at least since I heard about Jarden’s stunning performance and read that Franklin’s father was a former merchant banker who worked with Sir James Goldsmith.  See Billionaire: The Life and Times of Sir James Goldsmith. By the way, this biography is worth reading.  Hang in there through the first part though, if you’re not into the detailed links between the Goldsmiths and the house de Rothschild.  It will get into the life of the actual subject eventually.

Late last year, Franklin and his cohort dumped their stock and left the board.  NWL management, it seems, wanted to embark on a series of sales of divisions to slim down the company.  There was some mention of realignments and centralization.  Of course, this was less than two years after a massive acquisition of Jarden where 45% of the combined shares on closing were held by the former Jarden shareholders.

Apparently, the merger failed to yield the promised wonders or it was too unwieldy to manage or whatever.  To me management’s plan appeared to be the exact opposite of the decentralized authority with rational capital allocation oversight that was the Jarden mode of operation (and seems to be a common template for many successful investments I have studied).

The stock was obviously cheap on whatever metric you want to cite, IF performance did not continue to deteriorate.  Obviously, many of these brands do face generic competition and the retailers who sell them are supposed to be going extinct (see, Graco and Nuk stuff at Babies R’ Us).

So I was picking my spot (~$25 was where I was planning to start swinging). Then Carl Icahn announced that he had taken a stake.  I thought GREAT, I’m going to play (water boy) with the dream team!  He went on CNBC and talked about how NWL is a “no braineh.”  I agreed!  But then the stock popped.  Ok, I thought, “I will wait for this hype to die down and/or management to threaten the company’s credit.”

Then, Friday night, Uncle Carl filed another update with the SEC, indicating he had purchased even more NWL shares at up to ~$28 a share.  So this weekend I’m thinking, “Ok, maybe I should loosen up the target price.  I mean some people call Uncle Carl the King.”

To my mind, the competing plans were, management’s centralize management and sell some stuff, most of which we just got pencil whipped buying within the last two years, contrasted with Franklin’s decentralize and do what we previously did to make everyone really, really rich with basically these same businesses.  THAT was seemingly a no braineh.

Then Icahn (Uncle Carl is dead to me at this point) announced this morning that he has reached a deal with management (the paid help who want to execute their MBA playbook…not the former Jarden founders/management).

Under the reported terms of this deal, Icahn is getting to name four directors and management is getting to follow their disposition “plan.”  The plan has actually been expanded to sell $10 billion worth of businesses (so in total they are going to sell an amount almost equal to the $15 billy they paid for Jarden a little over two years ago).  Well at least this is good news for the consultants, bankers, and lawyers who can help management in their “deal making.”

The initial news reports cited the agreement for the “rally” in the stock.  Heading into the last hour of the trading day, however, it is now down about 6.5%.  It seems to me that management plan of liquidating some businesses, probably followed by buying back cheap stock might be good for a quick buck/vesting options.

I would preferred, however, to see what the former Jarden guys could achieve over the longer term with these brands and their system with thoughtful capital allocation layered on top over the longer term.

I usually think the claims of short term thinking as a criticism of shareholders who exercise their rights as owners of the corporation is basically just a red herring, but here I might have to acknowledge some legitimacy.

In the end, it looks like I am going to have to blame Brett Icahn for this lapse in judgment, so that my generally positive views about Uncle Carl can be confirmed.   Maybe Franklin and co. can buy the $10 billion in assets from NWL and compound them at 20-ish percent again for a decade or two and then this management team can “cap their career” again by executing another transformative merger with the same businesses.

My next post is either going to be about retail REITs/base rates in predictions or a personal finance topic.  Vote in the comments, if you have a preference.  Thanks for reading!

P.S.

It looks like Franklin and Co. are bowing out gracefully.  Mr. Franklin was quoted by the Journal today, stating that he told Mr. Icahn they would not run a proxy fight against him.  Interestingly, he also said they would look at buying the assets disposed of by NWL.  He said he wished Mr. Icahn well but said that he will be “shocked” when he sees the “bloated costs and financial maneuvering” within the company.

So maybe part of the “secret sauce” of having someone like Mr. Franklin or Messrs. Ashman and Lillie involved with a company is having someone to “mind the till” when it comes to expenditures of the shareholder’s money.

This reminded me of a great podcast episode I recently listened to.  In my opinion, Patrick O’Shaughnessy has one of, if not the best investing podcast going.  He recently had Dan Rasmussen of Verdad Capital on.  Even though I have heard Mr. Rasmussen in other interviews and read some stuff he has published, Patrick brought out some interesting facts with his superb interviewing style and questions.

There were a number of points that I will mention in other posts (such as remembering the proper role of base rates in projection/forecasting, being data focused versus narrative, and others.  Relevant to this post/subject, however, was Dan’s statement that maybe the only empirically defensible technique employed by private equity is cost cutting.  That certainly seems to have been key plank in Mr. Franklin’s plan for NWL.