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Newell to Boost Back-to-School Offerings with Elmer's Buyout

Zacks Equity Research

Global consumer products company, Newell Rubbermaid Inc. NWL has penned a deal to buy Elmer’s Products Inc. from a partner of Berwind Corporation, an investment management company. Newell will pay $600 million for the producer of adhesive and cutting products that are used for creative activities in classroom, at home or elsewhere.

Following the news, shares of this producer of Sharpie pens closed up 2.4% on Monday.

Elmer’s owns popular arts and craft brands like Elmer’s, Krazy Glue, and X-Acto, which will strengthen Newell’s existing product line that primarily caters to the Back-to-School selling season. Following the acquisition, which is expected to close by end of 2015, Elmer’s leading brands will join Newell’s Paper Mate, Sharpie, Expo and Mr. Sketch brands that form a part of its Writing segment.

Elmer’s distributes its Krazy Glue through a joint venture with Toagosei Chemical Co. Ltd. The leading adhesive producer is expected to generate $240 million of sales in 2015.

Not only will this acquisition enhance Newell’s Back-to-School offerings but will also deliver synergies in distribution, cross-selling and merchandising. Newell expects the acquisition to reflect in its earnings and operating margin in 2016. The company will fund the deal through its available liquidity and debt financings.

Simultaneously, the company also announced that it has initiated the sale process for its Levolor and Kirsch window coverings brands, within its decor business. The business, which is expected to generate sales of about $310 million in 2015, will continue to be reported under the company’s Home Solutions segment but will be run as a stand-alone business till the sale is completed.

Further, Newell stated that the acquisition of Elmer’s and the sale of its décor business will not impact its results in 2015 due to the timing of completion of both transactions. Thus, the company retained its recently provided guidance for 2015, which projects core sales growth in the range of 4%–5% and adjusted earnings per share of $2.14–$2.20 per share.

Moreover, the company expects to provide its guidance for 2016 along with its third-quarter 2015 results. The company expects 2016 earnings to bear marginal impact from these transactions as the accretion from the Elmer’s acquisition is likely to be offset in part by the planned sale of the décor business.

Zacks Rank

Newell currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry are CVSL Inc. CVSL and Energizer Holdings, Inc. ENR, both carrying a Zacks Rank #2 (Buy). Another well-performing stock in the broader consumer staples space is Dean Foods Company DF, with a Zacks Rank #2.

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