A couple of Midwest companies made a battery deal this morning which would send brands like Rayovac from Spectrum Brands (SPB 124.72, +4.24 +3.52%) to Energizer (ENR 59.59, +7.97 +15.44%).
The two electrical equipment names agreed on a deal whereby ENR would buy SPB’s Global Battery and Portable Lighting Business for $2.0 billion in cash. The two sides see the deal closing before the end of calendar 2018.
In a heavily-contested battery market, ENR isn’t getting a slouch as Spectrum Batteries generated 2017 revenue and EBITDA of $866 million and $169 million, respectively. The acquisition price represents a transaction multiple of 7.5 times Fiscal 2017 EBITDA, net of tax benefits with a net present value of about $100 million and including estimated run-rate synergies of $80 to $100 million and the costs to achieve.
ENR expects the deal to deliver modest accretion to its adjusted earnings per share and free cash flow in the first year, excluding one-time transaction and integration costs, and will achieve additional favorable accretive impacts following our realization of targeted synergies.
Further, the deal will expand ENR’s presence in a number of international markets, broaden its product portfolio and manufacturing capabilities, and increase capacity for research and development.
ENR sees the combined company generating net revenues $2.600 billion (from the previous expectation of about $1.756 billion). Additionally, free cash flow is expected to increase to greater than $300 million (from previous expectations of about $199 million).
Essentially, investors are more than pleased with the deal as the stock soared to all-time highs this morning. The stock had been on a bit of a run into the end of 2017, and thus far in 2018 with shares up about 27% from early-November lows of $40.64.
Jockeying for top dog in the alkaline and lithium battery space, ENR and Berkshire Hathaway’s (BRK.B 213.20, +3.04 +1.45%) Duracell have long been near the top. Today’s deal at least proves that the battery space is still a viable area for competition as Duracell is still very much a bellwether of the space, and competition from Amazon’s (AMZN 1331.70, +26.50 +2.03%) AmazonBasics creeps in from the outskirts.