Spectrum Brands Holdings Inc. (SPB), the consumer-products company controlled by Harbinger Group Inc. (HRG), agreed to buy Stanley Black & Decker Inc. (SWK)’s home unit for $1.4 billion in cash, expanding into the home-improvement and residential-hardware market.
The purchase will add 75 cents to 80 cents per share in profit in fiscal 2013, the Madison, Wisconsin-based company said today in a statement. Spectrum’s shares jumped the most in more than two years.
The deal will give Spectrum, which emerged from bankruptcy in August 2009, brands including residential lockset-maker Kwikset and Pfister, a manufacturer of faucets. It will be financed exclusively with debt and is Spectrum’s largest transaction since the $661 million purchase of kitchen-appliance maker Russell Hobbs in 2010.
Investors will be curious to see how quickly Spectrum can boost earnings from the unit and if taking on such a large deal brings on too much debt, said Hamed Khorsand, an analyst with BWS Financial in Woodland Hills, California.
“Spectrum has been selective in trying to find acquisition targets,” Khorsand said in a telephone interview. Investor reaction “depends on how accretive the deal is and how much debt it brings. I haven’t seen the management team do something as large as this since bankruptcy.”
Analysts expect Spectrum to make $2.90 a share in fiscal 2013, according to the consensus of estimates compiled by Bloomberg. Spectrum is 57 percent-owned by Harbinger Group, which is affiliated with the hedge fund run by Philip Falcone.
The hardware and home improvement unit’s cash flow will help pay down debt that Spectrum will take on to buy the company, Spectrum Chief Executive Officer Dave Lumley said today in the statement. The acquisition is expected to add an incremental $90 million of free cash flow in the first two years after the deal closes, the company said.
After the deal is completed, the hardware and home improvement unit will operate separately and will continue to be managed by Greg Gluchowski, who will report to Lumley.
Spectrum rose 12 percent to $45.96 at 10:41 a.m. in New York, the biggest intraday gain since May, 2010. The shares had increased 50 percent this year through yesterday. Stanley Black & Decker fell 0.9 percent to $73.53 and had advanced 9.8 percent this year through Oct. 8.
Since emerging from bankruptcy, Spectrum has increased sales through acquisitions. The 2010 merger with Russell Hobbs boosted sales to an estimated $3.2 billion this year from $2.6 billion in 2010. Stanley’s hardware unit, which generated $985 million in revenue in the year ended June, will push revenue to about $4.2 billion.
Spectrum’s divisions include Remington personal-care products, a pet-supplies division that has 13 different brands and a home and garden business that sells Black Flag and Hot Shot pesticides, among others.
Stanley said in July it hired Goldman Sachs Group Inc. to explore a sale of the hardware and home improvement unit and expected net proceeds of “significantly” more than $1 billion.
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