Spectrum Brands Holdings Inc. SPB successfully sealed its sale deal with Energizer Holdings Inc. ENR after satisfying required regulatory and other conditions. The deal was signed in January 2018. As part of the deal, the company offloaded its Global Battery and Lighting Business to Energizer for $2 billion in cash.
Following the completion of the sale transaction, Spectrum Brands is now ready to carry out planned actions like debt reduction to materially improve capital structure in fiscal 2019. Additionally, the company is set to concentrate on the development of its core business units — including Hardware & Home Improvement, Home & Garden, Pet, and Appliances — with higher investment in innovation and brand support.
As for Energizer, the company is now positioned to gain from the addition of well-known battery brands like Rayovac and Varta to its product portfolio. Further, the addition of these brands will boost Energizer’s international presence. In particular, the Varta brand will enhance the company’s footprint in Latin America. However, Energizer plans to sell the Varta consumer battery business in Europe in order to remove the European regulators’ concerns. Additionally, this takeover is likely to expand Energizer’s battery manufacturing footprint, which is expected to help the company ramp up supply.
Coming back to Spectrum Brands, the company has retained the Appliances business as part of the amended deal signed in November 2018. Consequently, it reclassified the Appliances business as continuing operations, comprising Personal Care and Small Appliances businesses, effective from the first quarter of fiscal 2019.
Moreover, Spectrum Brands is on track to complete the sale of its Global Auto Care (“GAC”) business to Energizer by February 2019. In late December 2018, the companies received approval from the Federal Trade Commission for the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Additionally, the companies received a nod from the Polish Competition Authority for the transaction along with attaining antitrust clearance in all required markets. Additionally, the “go shop” provision for the transaction expired on Dec 20.
Notably, the sale proceeds from the GAC business will include $937.5 million of cash and $312.5 million of Energizer Holdings’ equity. The GAC business mainly includes appearance product category, performance product category and A/C recharge product category. Per Spectrum Brands, this business aptly fits in Energizer’s existing auto care business portfolio. It notes that Energizer has the skills and resources to further expand this business.
Shares of Spectrum Brands rose 2.8% after the completion of the sale. However, this Zacks Rank #3 (Hold) stock has lost 40.3% in the past three months compared with the industry’s 20.8% decline. This underperformance can be mainly attributed to adverse impacts of the rising commodity and freight costs as well as higher operating costs. Additionally, Spectrum Brands’ high debt levels are worrisome.
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