Newell Brands (Rubbermaid) has received a subpoena from the SEC following informal information requests. Uh oh!
Newell purchased a competitor (Jarden) in 2016 for $20 billion. That brought $8.3 billion in goodwill to its books and, as a bonus, quadrupled its debt. Then, by 2018, Newell had written down, yes, get this, $9 billion in goodwill. It is one of those, “Okay, we were wrong on the valuation thing.” Oops.
Goodwill is one of those accounting red-flag areas. When you see it, don’t believe it because, sooner or later, and more and more it is sooner, it is going away. When it leaves, the SEC arrives.
Newell is now the stuff of junk-bonds (S&P Global). And the SEC says that it is looking at “sales practices and certain accounting matters.” Raise your hand if you can figure out the components of “accounting matters.”
Analyst say investors do not care about goodwill, debt covenants, etc. Perhaps so. However, what you find in all of these factors that are ignored by analysts are the following:
1. The pressures at the company
2. The ethics of management (keeping your word is some small part of debt covenants)
3. Combine ethics with the squishy numbers in goodwill impairment and the highly subjective becomes highly material