Spectrum To Acquire Former Salton/Applica Business

Spectrum Brands and Russell Hobbs, Inc. today announced they have signed a definitive agreement to bring Russell Hobbs’ network of small appliance brands into Spectrum’s operating structure to form a new global consumer products company with an estimated $3 billion in annual revenues.
In addition to the Russell Hobbs brand, the deal brings with it the former Applica brands including George Foreman, Black & Decker and Toastmaster. Terry Polistina, current CEO of Russell Hobbs and formerly of Applica, will join Spectrum in a similar capacity.
This all-stock transaction values Spectrum at an enterprise value of $2.6 billion, or $965 million net of debt, which equates to $31.50 per share net of Spectrum’s outstanding indebtedness, and privately held Russell Hobbs at an enterprise value of $675 million, or $661 million net of debt.
The combination will create a global consumer products company with a new home appliance business unit consumer brands that include George Foreman, Russell Hobbs, Black & Decker, Toastmaster and LitterMaid.
“This transaction will enable the combined company to reap the benefits of a deep and diverse portfolio of well-known consumer brands, a strong balance sheet, significant synergies and enhanced growth opportunities,” said Kent Hussey, CEO of Spectrum Brands. “For Spectrum’s shareholders, this transaction also provides an opportunity to de-lever our capital structure, lower the cost of our combined debt and provide greater liquidity, an improved risk profile and longer-term financing for our company.”
Following the closing of the transaction, the combined company, operating under the Spectrum Brands name, will continue to be managed by Spectrum’s current senior management team, with the addition of Terry Polistina, current CEO of Russell Hobbs, to lead a fourth reporting segment made up of the existing Russell Hobbs’ portfolio of home appliance brands. Terry will join Spectrum’s leadership team currently composed of Kent Hussey, CEO; Tony Genito, CFO; Dave Lumley, president/Global Batteries and Personal Care and Home and Garden; and John Heil, president/Global Pet Supplies.
Spectrum’s current reporting segments, Global Batteries and Personal Care, Global Pet Supplies and Home and Garden will remain autonomous and continue their focus on achieving profitable growth under their current management structures. Including Russell Hobbs’ $800 million in annual revenues, the combined company is expected to deliver approximately $3 billion in annual revenues with $430 million to $440 million of adjusted EBITDA in fiscal 2010. Anticipated synergies, primarily related to administrative and supply chain functions, of $25 million to $30 million should be realized over the 24 months following close of this transaction.
“Spectrum Brands’ and Russell Hobbs’ product lines, supply chain and retail customers are well-aligned, which will allow the combined company greater operating synergies as well as a broader portfolio of brands and products for our retail customers,” said Terry Polistina, CEO of Russell Hobbs. “This enhanced portfolio and the global distribution platforms we each bring together will enable us to deliver greater value to our consumers, our customers and our shareholders.”
David Maura, chairman of Russell Hobbs, Inc., and director/investments for Harbinger Capital Partners, whose affiliated funds currently hold approximately 40% of Spectrum’s shares and 100% of the shares of Russell Hobbs, added, “Harbinger has been an investor and a believer in both the Spectrum Brands and Russell Hobbs businesses for several years. We’re confident the combination of these companies will deliver increased financial value to all stakeholders. The increased liquidity and the enhanced capital structure of the emerging enterprise will enable management to enhance the growth profile of these synergistic businesses.”
As part of this transaction, the combined companies have received commitments from Credit Suisse, Bank of America and Deutsche Bank for approximately $1.8 billion in financing to refinance Spectrum Brands’ existing senior debt and a portion of Russell Hobbs’ existing senior debt through a combination of new term loans, new senior notes and a new $300 million ABL revolving facility. With current maturity dates of 2012 on Spectrum’s current term loans, the refinancing contemplated as part of this transaction, which is expected to provide term loans that will mature in 2016 and notes that will mature in 2017, will provide an enhanced long term capital structure to support the combined company’s strategic business objectives.
Upon closing, current shareholders of Spectrum will receive 1 share in the new combined company, “NewCo,” for each share they hold in Spectrum. Furthermore, as part of the transaction, Harbinger has agreed to convert its existing approximately $158 million aggregate principal amount of Russell Hobbs’ term debt and approximately $207 million of Russell Hobbs’ preferred stock into common stock of NewCo at a price of $31.50 per share. Following the closing of the transaction Harbinger is expected to own approximately 63.7% of the combined entity.
The deal is expected to close in the summer of 2010 and is subject to: approval by holders of a majority of Spectrum’s common stock not owned by Harbinger; a 45-day “go-shop” period in which Spectrum may solicit alternative proposals; closing of the new financing; and other customary closing conditions. Avenue Capital, Spectrum Brands’ second largest shareholder, has agreed, subject to certain conditions, including the Spectrum Board’s continuing recommendation of the transaction, to vote its shares of Spectrum Brands’ common stock in favor of the transaction.
In contemplation of this deal, Spectrum, currently trading its common stock under the symbol SPEB on the OTC Bulletin Board, intends to pursue listing its common stock on a major exchange, such as the New York Stock Exchange or Nasdaq, prior to the closing of this transaction.