|Just in time to make it into the 2015 record books, a couple of big household-products makers may be on the verge of a deal.|
Combined Market Value
Newell Rubbermaid and Jarden -- companies with a combined market value of $24 billion -- are in talks to combine, according to a Wall Street Journal report late Monday. The union would put products from Mr. Coffee machines to Rawlings baseballs, PaperMate pens and, of course, Rubbermaid containers all under the same roof.
Shares of Newell Rubbermaid and Jarden closed roughly 7 percent and 4 percent higher, respectively, and although the deal's structure is unclear, it makes sense for Newell Rubbermaid -- the slightly larger of the two, with a market value of almost $13 billion -- to be seeking out its biggest bet yet.
Newell Rubbermaid's shares had climbed 18 percent this year before news of the deal on Monday. Last week, it surpassed the $45 mark, a feat it hadn't achieved since the middle of 1999.
Newell Rubbermaid has outperformed Jarden this year.
So perhaps it's no surprise that, buoyed by the company's best price in more than 15 years, Newell Rubbermaid CEO Michael Polk is thinking big despite what he's previously guided.
At a Morgan Stanley conference three weeks ago, Polk said the company's priority was to make bolt-on M&A acquisitions, similar to those it had done in the past. He outlined about $5.5 billion of capacity over the next few years for deals, buybacks and an increased dividend.
For his own part, Jarden CEO James Lillie said in April that company "would consider selling all of Jarden" if the right bidder came along.
Jarden certainly wouldn't be a bolt-on acquisition: it'd be at least double the company's $6 billion acquisition of Rubbermaid in 1999, its biggest deal so far. But buying Jarden would give it a more diverse stable of brands, including Coleman coolers, Bicycle playing cards and the recently added Waddington food containers and Jostens class rings and yearbooks.
And even though Newell Rubbermaid is the bigger of the two companies, Jarden actually brings in more revenue. Helped by its biggest year for acquisitions yet and a projected 16 percent pop in revenue next year, Jarden is on track for more than $10 billion in sales in 2016 versus a projected $6.1 billion for Newell Rubbermaid.
All of that potential comes at a price. Back in August, investors pushed Jarden's enterprise value to a record 22 times trailing Ebitda. While foreign exchange headwinds and pressures on its Brazilian business have since driven the stock down, Jarden is still pricier than most big U.S. household products companies.
Jarden's valualtion has been rising.
Even so, as long as Newell Rubbermaid pays at least 30 percent in cash, a deal should be accretive to 2016 earnings per share at a 30 percent premium to Jarden's unaffected stock price -- before accounting for synergies, according to data compiled by Bloomberg. That may be as good a reason as any for another record to fall.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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