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The fight for Sharpie and Yankee Candle

An $18 billion case of buyer's remorse is gripping the conglomerate that makes Sharpie, Yankee Candl...

Posted: Feb 22, 2018 8:22 PM
Updated: Feb 22, 2018 8:22 PM

An $18 billion case of buyer's remorse is gripping the conglomerate that makes Sharpie, Yankee Candle and Elmer's glue.

In 2015, Jarden co-founder Martin Franklin sold his brand to Newell Rubbermaid, combining the company that made Mr. Coffee and Crock-Pot with Rubbermaid containers and Expo markers. But the match has fizzled. Sales have disappointed, and Franklin resigned his board seat last month.

He didn't go quietly though.

Franklin and two other former Jarden executives are now teaming up with Starboard Value, an activist hedge fund that owns 4% of Newell. They want to overthrow the board.

"This is a man-bites-dog story," said John Coffee, a professor at Columbia Law School who studies corporate governance.

Activist firms typically want to pick up two or three board seats and use their minority position to press for big changes -- maybe a new CEO, selling off business units, or a merger. Big investors often hesitate to give up any control to activists without receiving a premium in return, Coffee explained.

Related: The battle for the future of Tide

But Starboard wants to take complete control of Newell and steer it in a new direction without paying a dime.

"This is the equivalent of a tender offer without the money," Coffee said.

Starboard has executed the same playbook before. In 2014, Starboard successfully ousted the entire board at Olive Garden's parent company Darden Restaurants.

In a letter to Newell CEO Mike Polk last week, Starboard cited the company's "troubling underperformance." Newell revised its financial outlook lower three times last year and its stock has cratered 42% in the last year.

Starboard blamed Newell's leadership for "critical missteps" integrating Jarden's brands into the business and failing to meet sales growth and profit targets. Starboard also criticized board directors for "[lacking] the confidence" to buy Newell's stock following its drop.

"We firmly believe that the time has come for management and the [board] to step aside," Starboard told Polk.

Some of Newell's problems are out of its control. Brick-and-mortar retail woes have plagued the company.

Newell sells products directly to mall and specialty stores, but both have cut back on orders and reduced inventory as traffic slows, said Joseph Altobello, an analyst at Raymond James.

Toys 'R' Us' and Babies 'R' Us bankruptcies hurt Graco car seat and Baby Jogger stroller sales. Office Depot closures dampened Newell's "learn" division, which includes Jostens notebooks, Sharpie, Reynolds, Parker and Uniball pens and Expo markers.

Sports brands like Berkley fishing gear and Rawlings baseball glove sales have also slowed during off seasons, said Jason Gere, an analyst at Keybanc Capital Markets.

Related: Now Amazon is coming for Sharpie, Rubbermaid and Elmer's

But many of Newell's issues are self-inflicted.

Bringing Jarden's independent brands into the fold has created challenges for Newell. Units operated autonomously at Jarden, but Newell has a centralized organizational structure. Integrating the two didn't go as smoothly as planned and some of Jarden's top brand experts were reshuffled or cut, said Gere.

"It all came together in kind of a perfect storm. Now they have to work their way out of it," he said.

Newell has a strategy to fight back.

On the same day it announced that Franklin and two other board members were leaving, Newell unveiled plans to downsize.

It's selling off struggling lines including Rawlings gloves, Goody hair curlers and Rubbermaid outdoor and garage products, shrinking manufacturing operations in half and consolidating into nine consumer brand divisions. The plan will cut Newell's annual sales by $3 billion. It's also going to reduce its debt and buy back stock.

In its letter, Starboard called it a "hastily-designed action to deflect blame from the recent poor performance."

But Polk defended the move on an analyst call last week. "We have a clear plan in place to drive value," he said. In addition, Newell nominated three new directors on Thursday.

Analysts say it's still too early to tell which side will win the proxy fight, but Newell's shareholder breakdown may provide a clue to who holds the upper hand when investors vote on each side's board candidates in the spring.

Twenty institutional investors control 55% of Newell's stock, which means Starboard has a strong chance if it can convince those large firms to side with its proposal. Newell's management also doesn't control a large stake in the company, hurting its chances.

"The majority institutional ownership means that Starboard can effectively ignore retail investors," said Nicole Boyson, an associate professor of finance at the D'Amore-McKim School of Business at Northeastern University. Boyson said Newell's unexpected divestiture move "signals to me that they're running scared."

Altobello said Newell's stock slide exposed the company to an activist challenge: "There's definitely a continent of shareholders who are unhappy and may be looking for change," he said.

But Charles Elson, a finance professor at the University of Delaware, argued Starboard is facing an uphill battle.

Starboard has to prove that corporate governance has failed and that it has a better plan than Newell for the future. "It's very, very difficult to replace entire boards," Elson said. "You're no longer are an agitator. You're a manager."

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 1118335

Reported Deaths: 17712
CountyCasesDeaths
Marion1455892240
Lake724831254
Allen67063882
Hamilton51060487
St. Joseph49820649
Elkhart40268546
Vanderburgh34714497
Tippecanoe30808276
Johnson27696467
Hendricks26313385
Porter25657386
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Wayne12090269
Floyd12011226
Grant11998245
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Boone9869124
Noble9316122
Henry9177169
Marshall9152147
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Gibson7102118
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Clay464662
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Union122616
Ohio92413
Unassigned0595

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1731003

Reported Deaths: 26851
CountyCasesDeaths
Franklin1803711843
Cuyahoga1698662655
Hamilton1144371544
Montgomery810251405
Summit726231210
Lucas636141027
Butler57225814
Stark543091183
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Clermont31523369
Trumbull27614620
Delaware27394185
Licking26829344
Medina26290353
Fairfield24812287
Greene24540373
Clark22327390
Portage21504283
Richland21257342
Wood20300248
Allen19119326
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Wayne15873307
Tuscarawas14579362
Marion13440196
Ashtabula12927237
Erie12790199
Scioto12556188
Pickaway12308155
Ross11780226
Hancock11623175
Geauga11042179
Lawrence10698172
Belmont10509234
Huron9867159
Jefferson9687228
Union963775
Sandusky9428166
Seneca8993161
Knox8869176
Washington8714159
Darke8435181
Athens841897
Ashland8102152
Auglaize8018120
Shelby7551135
Defiance7418117
Crawford7356150
Fulton7262113
Brown7217116
Logan7061111
Guernsey700586
Mercer6959100
Highland6807120
Clinton6547106
Williams653899
Madison652590
Preble6334140
Putnam6288122
Champaign585187
Jackson584597
Perry570579
Ottawa5689102
Coshocton5688108
Morrow521765
Fayette497272
Hardin4947100
Gallia474278
Van Wert469395
Pike467678
Adams4619110
Henry439280
Hocking412493
Holmes4035141
Wyandot379275
Carroll371178
Paulding326351
Meigs307561
Monroe236861
Noble221549
Morgan219039
Harrison215253
Vinton189138
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