Spectrum to Take Over Investor HRG Group in $10 Billion Deal

Updated on
  • HRG will execute reverse stock split as part of transaction
  • Spectrum owns brands such as Armor All and Black Flag

Spectrum Brands Holdings Inc., the maker of Armor All, Black Flag and other consumer products, is taking over its own majority shareholder in a transaction valued at $10 billion.

Under the deal, investors in HRG Group Inc. -- a holding company that owns Spectrum as its primary investment -- will become owners of the new merged entity, according to a statement Monday. The conglomerate, formerly known as Harbinger Group, was previously led by Philip Falcone.

The idea is to turn Spectrum into a business with no controlling investor and widely held shares, while still getting tax benefits currently enjoyed by HRG. Investors such as Tourbillon Capital Partners had previously called on Spectrum to execute such a deal.

“This transaction will deliver substantial value to all Spectrum Brands shareholders, including the company’s minority shareholders,” Terry Polistina, chairman of the special committee of Spectrum, said in the statement. “We look forward to the current Spectrum Brands’ management team advancing our growth and success.”

HRG will execute a reverse stock split that lets its investors receive the same number of shares in Spectrum as the company currently owns -- plus adjustments to account for HRG’s debt and transaction costs, as well as an additional $200 million.

Shares of Middleton, Wisconsin-based Spectrum gained as much as 4.6 percent to $108.32 after the deal was announced. HRG climbed 6.4 percent to $16.92.

Battery Sale

Spectrum, which emerged from bankruptcy in 2009, has assembled a portfolio of brands such as Black & Decker tools, George Foreman appliances, Cutter insect sprays and Rayovac batteries. Last month, it agreed to sell its battery and lighting business to Energizer Holdings Inc. for $2 billion in cash. That agreement won’t be affected by the HRG transaction.

Spectrum also has been seeking buyers for its appliance business. In all, Spectrum expects to get as much as $3.7 billion from the transactions, including $2 billion from the battery deal and $1.6 billion to $1.7 billion from the sale of its appliances division.

HRG, meanwhile, has been divesting insurance assets -- a move that set the stage for Monday’s transaction. The merger is expected to be completed in the second quarter. Leucadia National Corp. and Fortress Investment Group, the biggest investors in HRG, are backing the deal.

Moelis & Co. served as the financial adviser to Spectrum’s special committee, while Kirkland & Ellis LLP and Cleary Gottlieb Steen & Hamilton LLP offered legal help. JPMorgan Chase & Co. and Jefferies LLC were HRG’s financial advisers, with Davis Polk & Wardwell LLP providing legal counsel.

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