Financial Buyers and a Partnership Get Carter-Wallace in a Two-Part Sale

Carter-Wallace Inc. ended a two year-long search in May for a business model that would deliver better results by opting to sell itself in two parts for a total of about $1.1 billion. The complex transaction, which is due to be completed by the fall, took the involvement of three private equity firms and one strategic buyer to negotiate the sale. If either half of the proposed deal goes off the tracks between now and closing, it will scuttle the other deal as well. Part of the reason for the complicated nature of the company’s sale is that most of its voting power in held by CPI Development Corp., a holding company controlled by the founding Hoyt family, which has about 83% control. Carter-Wallace said CPI has agreed to vote in favor of the transactions, subject to limited exceptions. But the breakup plan hasn’t pleased all shareholders. Notably, well-known investor Mario Gabelli, who holds more than 20% of the company’s common stock, repeatedly objected to Carter-Wallace’s strategic moves, including the two-part sale. He wanted the company to postpone the breakup, arguing that other options would create more shareholder value. But with the Hoyt voting control of the company in place, his arguments went unheeded. The transaction separates the company into a consumer products business and a health care unit. On the consumer products side, Church & Dwight Co. Inc. will buy the Carter-Wallace assets. Church & Dwight, in a partnership with private equity firm Kelso & Co., will pay a total of $739 million, including the assumption of certain debt. Under the terms of its agreements with Carter-Wallace and Kelso, Church & Dwight will acquire Carter-Wallace’s U.S. antiperspirant and pet care businesses outright for about $128 million. ArmKel LLC, a 50/50 joint venture between Church & Dwight and Kelso, will acquire the rest of Carter-Wallace’s domestic and international consumer products business for $611 million. In addition, Church & Dwight has a call option to acquire Kelso’s interest in ArmKel in three to five years following the deal closing at fair market value. If Church and Dwight doesn’t exercise its options, there are provisions for Kelso to sell the assets after five years. Robert A. Davies III, Chairman and CEO of Church & Dwight, commented, “We are excited by this opportunity to acquire Carter-Wallace’s consumer products business directly and through ArmKel. The transaction will create a nearly $500 million U.S. personal care business with strong market positions in oral care and antiperspirants, and leading positions in condoms and depilatories, and provide us with the scale and capabilities to take full advantage of the significant growth opportunities available in all of these categories. An added benefit is that it creates a $250 million international business and provides a platform for expanded international growth.” One analyst, however, has voiced concern that Church & Dwight may have integration problems because the Carter-Wallace acquisition follows closely after the company’s acquisition of USA Detergents Inc. “We believe that the Carter-Wallace acquisition may spread the company’s resources too thinly,” said Prudential Securities analyst Constance Maneaty. But Davies has said, “This transaction will bring the same scale and focus to our personal care business as the USA Detergents transaction does to our household products business. With the completion of these two transactions, Church & Dwight, together with ArmKel, will have a well-balanced $1.4 billion portfolio of household and personal care brands.” The second half of the deal calls for a private equity group made up of MedPointe Capital Partners, Carlyle Group, and Cypress Group to buy Carter-Wallace’s health care business for $408 million. MedPointe and partners are getting such assets as Wallace Laboratories, Carter-Wallace’s pharmaceuticals arm, and Wampole Laboratories, its diagnostics unit. The health care private equity investors will also get the rights to the Carter-Wallace name. “Carter-Wallace is a health care products company with a long history and strong assets,” Medpointe chairman and CEO Anthony Wild said in a news release. “The job now is to capitalize on those assets through increased emphasis on sales and marketing, product development, and licensing.” Wild is a former head of Carter-Wallace’s pharmaceuticals business. MedPointe plans to close the pharmaceutical unit’s New York headquarters and move its operations to a North Jersey site. Most of the senior management will not be retained.