Spectrum and Russell Hobbs Merge
The two Harbinger-backed consumer products companies expect the deal will close by the summer of 2010.
February 9, 2010
Spectrum Brands, Inc., an Atlanta, Georgia-based consumer products company will acquire the Miramar, Florida-based kitchen appliances company Russell Hobbs, Inc. in an all-stock transaction.
The transaction values Russell Hobbs at about $661 million net of debt. The transaction, which is expected to close in the summer of 2010, includes a 45-day “go-shop” period. In February 2009, Spectrum filed for chapter 11 protection in the United States Bankruptcy Court for the Western District of Texas.
In August 2009, Harbinger Capital Partners, a hedge fund founded by Philip Falcone in 2001, disclosed a 42% stake in Spectrum Brands.
In speaking with Mergers & Acquisitions, Spectrum Brands chief executive Kent J. Hussey said Harbinger approached the company last year with a plan to merge Russell Hobbs, previously known as Salton, with Spectrum Brands.
Harbinger acquired Salton and merged the company with Applica, another company controlled by the hedge fund, renaming the combined business Russell Hobbs, Inc. in December 2007.
Hussey said Spectrum’s Remington brand and the Russell Hobbes business are highly complementary. Both businesses source products in the middle East, and expect synergy opportunities to emerge from engineering and logistics opportunities in China, and from existing distribution platform in North America, Latin America, and Europe, he noted.
Harbinger owns the entirety of Russell Hobbs, and will convert $158 million in Russell Hobbs’ term debt and about $207 million of the kitchen appliances company’s stock into common stock at the new company for $31.50 per share. The New York hedge fund will own about 63.7% of the combined company.
“We had a substantial debt burden with a $1.6 billion facility that would have to be re-financed in March,” Hussey said. Instead, the transaction will allow Spectrum to refinance the company and put in place a new facility. “In the way that Russell Hobbes it is being brought in, the company has virtually no debt. The interest burden will be less, leverage ratio will be less, and more cash is now available for business growth or add-on acquisitions.”
Spectrum was formerly known as Rayovac Corp. Following the 2005 purchases of St. Louis-based insect repellent maker United Industries Corporation and the German pet supplies company Tetra Holding GmbH, the Atlanta, Georgia-based company’s debt ballooned from $875 million at the beginning of 2005 to $2.6 billion in April 2005.
As a result of the company’s liquidity difficulties, Spectrum filed for chapter 11 protection in the United States Bankruptcy Court for the Western District of Texas in February 2009. During the bankruptcy period, Spectrum eliminated $830 million in subordinated debt.
Spectrum expects the transaction to improve its debt position. As of January 3, the company had 4.7x Ebitda mulitples. Following the deal, the combined company expects 3.8x Ebitda multiples.
Hussey said the company is now able to pursue add-on purchases of niche businesses within its pets supplies and home & garden controls businesses.
A new $300 million facility will provide liquidity for working capital. In addition, Credit Suisse, Bank of America and Deutsche Bank have committed about $1.8 billion in financing to refinance Spectrum Brands’ senior debt and term loans.
Barclays Capital Inc. served as financial advisor and Jones Day was legal counsel to Spectrum’s independent board in the transaction. Sutherland, Asbill & Brennan LLP advised Spectrum. Russell Hobbs was advised by Credit Suisse and received council from Paul, Weiss, Rifkind, Wharton & Garrison.
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