“The wind goes toward the south, and turns about to the north; it turns about continually in its spin, and the wind returns again to its spin.”(Ecclesiastes 1:6)
Some companies are such inveterate spinners, that one could get dizzy watching their machinations. In 2000, after 14 years of ownership, Ralston Purina spun off Energizer Holdings(ENR). Ralston Purina would soon sell itself to Nestle(NSRGY). Ralston Purina had previously spun off Ralcorp, which spun off Post Brands(POST) prior to its own acquisition by Conagra(CAG). Other Ralston Purina spinoffs included Agribrands and Continental Baking Company, maker of Wonder Bread and Hostess snack cakes, which it had purchased from ITT(ITT), itself a frequent spinner. Ralston Purina also owned and sold such diverse assets as the St. Louis Blues hockey team, a ski resort, and Jack In The Box(JACK) restaurants. But, we digress.
Several years after its spinoff from Ralston Purina as a pureplay battery manufacturer, Energizer purchased shaving brands Schick and Wilkinson Sword from Pfizer(PFE). Though the company claimed synergy as both product lines were commonly stocked in supermarket checkout lanes, it always seemed to us as a transparent attempt to mimic Gillette, which owned Duracell in addition to its namesake shaving brand. Energizer continued to grow by purchasing unwanted personal care product brands from larger companies, though the bulk of the bulk of the Personal Care group are the assets acquired in its 2007 purchase of Playtex Products. Incidentally, Playtex’s apparel sister had earlier been purchased by Sara Lee, and was later spun off as part of Hanes Brands(HBI).
And now, we finally get to our buried lede. This morning, Energizer announced its plan to split into two companies, one containing Household Products, and one focused on Personal Care.
- Household Products, with batteries and portable lighting products, is expected to generate strong margins and significant cash flows, and will be anchored by the universally recognized Energizer® and Eveready® brands. The Household Products division reported annual revenue of approximately $1.9 billion in the trailing twelve month period ended March 31, 2014.
- Personal Care is expected to be a leading pure-play consumer products company with an attractive stable of well-established brand names, including Schick® and Wilkinson Sword® in Wet Shave; Edge® and Skintimate® in shave preparation; Playtex®, Stayfree®, Carefree® and o.b.® in Feminine Care; and Banana Boat® and Hawaiian Tropic® in Sun Care. The Personal Care division had annual revenue of approximately $2.6 billion in the trailing twelve month period ended March 31, 2014, adjusted on a pro-forma basis for the feminine care acquisition.
The move expected to be completed in the second half of fiscal 2015, basically takes every asset acquired since Energizer’s own 2000 spin, and spins them off in the combined Personal Care business. The Personal Care business is clearly where management sees the future, as current CEO Wad Klein will continue there as Executive Chairman.
We’ll let the company sing the virtues of each new firm
New Household Products: A Leading Consumer Products Company with Globally Recognized Brands and Icons
We expect Household Products will create value by leveraging its leading battery and lighting brands to generate significant cash flows. Its globally recognized brands and products are sold throughout the world. Household Products is well-positioned to maintain strong market positions in its categories. It has global scale, a broad product portfolio, healthy margins, high household penetration, and its product categories remain important basket builders for retailers.
As a standalone company, we believe Household Products will be attractively positioned to:
- Build market share through distribution and investment in effective category fundamentals;
- Drive relevant, consumer-led marketing innovation;
- Accelerate initiatives to optimize its global cost structure; and
- Generate substantial free cash flow that will enable a return of capital to shareholders.
New Personal Care: Leading Pure-Play Personal Care Company with Attractive Stable of Brands
We expect Personal Care will create value by building on its track record of innovation in product development and marketing to drive top-line growth and win market share. It has a broad portfolio of leading global Wet Shave, Sun and Skin Care, Feminine Care and Infant Care products in attractive categories. Importantly, Personal Care has strong positions in large and developed markets, and its products hold #1 or #2 positions in their categories.
As an independent entity, we believe Personal Care will be able to:
- Accelerate growth across all categories;
- Execute a focused global go-to-market strategy;
- Grow through disciplined strategic acquisitions; and
- Generate substantial free cash flow that will enable investments and capital return.
The Household Products group will continue to be run by its current management team. We know very little about what the balance sheets will look like, but suspect that expectations for the Household Products business will be low, potentially creating an opportunity for a focused management to surprise investors. After all, Energizer keeps going and going and going…
Update: The company has now posted a presentation about the proposed spin.
Disclosure: The author holds no position in any stock mentioned
