Energizer Holdings Inc. (NYSE:ENR) is acquiring the
global battery and portable lightning business of Spectrum Brand Holdings Inc.
(NYSE:SPB) for $2.0 billion in a deal that is expected to increase the
company’s already large share in the market.
The news sent the stocks of both Energizer and Spectrum
Brands up at the end of the recent trading session. According to Page Moreau, a
marketing professor at UW-Madison School of Business, the increases show that
the combination is “optimal” for both parties.
Spectrum Batteries is known for its Rayovac and Varta
brands, with its portfolio including alkaline and other battery types as well
as portable lighting products.
There are regulatory concerns, but Energizer said the
acquisition will not only widen its product portfolio but also boost its
presence in several foreign markets.
Already renowned for its Energizer and Eveready brands,
Energizer is expected to take hold of over 40 percent of the market in the U.S.
and 85 percent of the total market after the transaction, according to SunTrust
analyst William Chappell.
“We believe having the category controlled by two
rational players as a ‘functional duopoly’ should yield pricing and margin
benefits for both companies for years to come,” Chappell was quoted as
saying by Reuters.
In 2017, Spectrum Batteries generated EBITDA and revenue
of $169 million and $866 million, respectively. Energizer expects to realize
yearly savings of between $80 million and $100 million under the deal
Energizer plans to fund the transaction via a mix of
existing cash and debt. The deal is expected to close before the end of 2018.
Spectrum Brands, meanwhile, plans to use the proceeds
from the sale to slash debt and reinvest in its core businesses, including
autocare, hardware and pet supplies. It is also actively marketing its
Missouri-based Energizer has a market cap of $3.58
billion. As of September 30, 2017, its biggest shareholder is Blackrock Inc.
with 5.35 million shares valued at $246.5 million. Vanguard Group Inc. is its
second largest shareholder with 5.30 million shares valued at $244.0 million as
of the end of the same period.
Energizer ended the day trading at $59.11 per share, up
by more than 14 percent. Spectrum, meanwhile, is up by nearly 4 percent at
$125.23 per share at market close.