“We can say without reservation that, in investing, spinoffs are the closest thing you can find to a sure thing. It all comes down to the incentives when companies spin off a subsidiary or division and hand out shares to their shareholders. Study after study has shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years….” Pat McKeough shows how spinoffs and other “special situations” can create windfalls for informed investors.
NEWELL BRANDS INC. $27(New York symbol NWL; Consumer sector; Shares outstanding: 485.2 million; Market cap: $13.1 billion; Divd. yield: 3.4%; Takeover Target Rating: Medium; TSINetwork Rating: Average; www.newellbrands.com)makes a variety of household goods such as pens, coffee makers and baby strollers. On April 15, 2016, the company took its current form through the merger of Newell Rubbermaid and Jarden Corp. Newell shareholders now own 55% of the combined firm.
Earnings in the fourth quarter of 2017 fell 15.0%, to $0.68 a share from $0.80 a year earlier. Due to recent asset sales, revenue fell 9.5%, to $3.74 billion from $4.14 billion. On a comparable basis, revenue declined 1.9%.
The lower results are partly due to the bankruptcy of Toys ‘R’ Us, which is a leading retailer of baby strollers and related products. As well, Hurricane Harvey damaged several plastic producers in the Gulf region of the U.S. The disruption has increased Newell’s raw material costs. It has also hurt the company’s profit margins.
Newell now plans to narrow its focus to nine key product lines: writing; baby; home fragrance; food; fishing; Jostens (jewellery); appliances and cookware; outdoor and recreation; and safety and security.
As part of that restructuring plan, the company has said it will sell or spin off some of its smaller businesses. It will also reduce its worldwide factory and warehousing locations by 50%. Newell aims to complete the plan by the end of 2019.
These setbacks have now attracted the attention of two activist investors. In February, New York-based Starboard Value, which owns 4.5% of the outstanding shares, wants to replace Newell’s 12 directors with its own slate. In addition to that, Starboard wants to replace Newell’s current CEO Michael Polk with former Jarden CEO Jim Lillie.
Billionaire activist investor Carl Icahn also owns 6.86% of Newell Brands. The company has agreed to appoint four of his nominees to its board of directors.
Newell Brands is still a buy.
AT&T INC. $36(New York symbol T, Utilities sector; Shares outstanding: 6.1 billion; Market cap: $219.6 billion; Dividend yield: 5.6%; Takeover Target Rating: Lowest; TSINetwork Rating: Average; www.att.com) is the largest U.S. wireless provider. It also sells TV cable packages and high-speed Internet and landline phone services.
The company plans to set up its Latin American DirecTV (satellite television) business as a separate firm. It will then sell shares through an initial public offering (IPO).
Called Vrio Corp., this unit draws 13.6 million subscribers from 11 countries in South America (8) and the Caribbean (3). For 2017, Vrio’s revenue rose 10.9%, from $5.0 billion in 2016 to $5.6 billion. Earnings improved to $222 million from a loss of $356 million. To put those amounts in context, AT&T earned $29.5 billion, or $4.76 a share, for 2017. Revenue was $160.5 billion.
AT&T has yet to reveal how many Vrio shares it plans to sell or when it will complete the IPO. However, the offering should raise $1.5 billion. The new shares will trade on the New York exchange under the “VRIO” symbol.
Once Vrio establishes itself as independent company, AT&T could eventually hand out its remaining shares in the new firm to its own shareholders as a special dividend.
The deal requires court approval, as does AT&T’s plan to acquire media giant Time Warner Inc. (New York symbol TWX) for $85.4 billion. Currently, AT&T shares trade at just 10.4 times the 2018 earnings forecast of $3.46 a share. The company’s $2.00 dividend yields a high 5.6%.
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