Newell Brands urges shareholders not to respond to activist Starboard Value

Shares of Newell Brands (NWL) are in focus in morning trading after the company urged shareholders not to act on the latest communication from activist hedge fund Starboard Value, which is seeking to replace Newell's entire board. NEWELL SHAREHOLDER LETTER: On Wednesday, Newell's independent directors issued a shareholder letter in response to the 12 candidates nominated by Martin Franklin and Starboard for election at its upcoming annual meeting. Franklin, former CEO and chairman of Jarden, which was acquired by Newell in 2016, and Ian Ashken, another former Jarden board member, are among the nominees. They both served on Newell's board following the acquisition, but resigned following an unsuccessful attempt to elect Franklin as chairman. "Mr. Franklin continues to divide his time among his many personal interests and businesses, including his service on four other boards, two of which have designated him as chairman," Newell said. "While Starboard and Mr. Franklin have not yet produced plans to create shareholder value, their rumored approach would copy the model used on the legacy Jarden business, which relied upon an acquisition led strategy during an entirely different retail, interest rate and acquisition value environment...This simplistic approach vastly underestimates the changes that have occurred within the company and in the marketplace and is highly risky." STARBOARD NOMINEES TO PURCHASE STOCK: Additionally on Wednesday, Starboard, which has a stake of about 4.5% in Newell, announced that nominees Ashken, Franklin and James Lillie, have committed to purchase an aggregate of $25M worth of Newell stock with their personal capital if Starboard successfully replaces Newell's board. If elected, Ashken, Franklin and Lillie also will commit to not sell any of the shares as long as they continue to serve as directors unless Newell's share price exceeds the company's share price on April 15, 2016, the day on which Newell closed its acquisition of Jarden. Franklin commented that "Newell is a great company, with great people and fantastic brands. Over the past two years, we, along with many shareholders, have suffered significant value destruction under the current leadership team." WHAT'S NOTABLE: Kevin Conroy, the fifth director to resign from Newell's board since late January, said he left the board as a personal choice and he supports Starboard's efforts to turn around the company, Bloomberg reported Monday. "I resigned because I do not believe that the current course is the optimal path forward for the company," he said. "I am not comfortable with recent events and have come to believe that change is needed." Following the report, Starboard issued a statement thanking Conroy for his support and said, "We believe the resignation of five well respected directors of Newell, several of whom were on the legacy Newell Rubbermaid Board, is astonishing and a serious indication that significant change is necessary." In addition, billionaire investor Carl Icahn recently purchased a leading equity stake in Newell, putting him in a position to play a key role in the proxy fight, The New York Post reported on March 1. In an interview with CNBC, Icahn said he considered nominating his own slate of directors for the board but didn't want to be "the third horse in a three-horse race." ANALYST COMMENTARY: On Wednesday, Raymond James analyst Joseph Altobello noted the increasing number of news reports indicating Toys R Us is contemplating a liquidation plan and could close all of its U.S. stores. He estimates Toys R Us represented about 1%-2% of Newell's total sales last year and he believes the announced plans to close 180 stores is reflected in Newell's 2018 normalized earnings per share guidance, but that the closure of an additional 600+ stores is not. Altobello estimates the added closures could amount to an additional 10c-12c hit to Newell's annualized EPS. Despite what seems to be a depressed valuation, he suggests investors "let the dust settle" and kept a Market Perform rating on Newell Brands shares. PRICE ACTION: Newell is up about 0.6%, or 18c, to $28.78 in morning trading.