Microsoft Word - Newell Ru
ermaid Jarden v1.docx
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C o p y r i g h t * XXXXXXXXXX * S t e v e n * F e r r a r o 5 * N o * p a r t * o f * t h i s * c a s e * m a y * b e * r e p r o d u c e d , *
s t o r e d * i n * r e t r i e v a l * s y s t e m s , * u s e d * i n * a * s p r e a d s h e e t * o r * t r a n s m i t t e d * i n * a n y *
f o r m * o r * b y * a n y * m e a n s * * 5 * e l e c t r o n i c , * m e c h a n i c a l , * p h o t o c o p y i n g , * r e c o r d i n g , *
o r * o t h e r w i s e * – * w i t h o u t * t h e * p e r m i s s i o n * o f * t h e * a u t h o r . *
Newell%Ru
ermaid’s%Acquisition%of%
Jarden%Corporation%
%
%
On% December% 7,% 2015,% Newell% Ru
ermaid% announced% that% it% had% successfully%
negotiated%the%purchase%of% Jarden%Corporation.% %The%combined% firm%would%have%an%
enterprise%value%of%approximately%$22%billion.%%The%combination%is%expected%to%create%
significant%cost%reductions%and%possible%revenue%enhancements.%
%
This%case%is%developed%solely%for%the%basis%of%classroom%discussion%and%is%not%intended%
to%serve%as%an%endorsement,%or%to%illustrate%effective%or%ineffective%management.%
Fall*15%
08!Fall*
Newell Ru
ermaid’s Acquisition of Jarden Corporation
!
! 1!
Introduction*
!
Rumors!of!a!potential!combination!of!Jarden!Corporation!and!Newell!Ru
ermaid!
surfaced!in!September!of!2015!following!a!meeting!of!executives!from!each!of!these!
companies! at! an! investor’s! conference! hosted! by! Barclays.! On!December! 7,! 2015,!
Michael! B.! Polk,! President! and! CEO! of! Newell! Ru
ermaid! (NWL)! and! Martin! E.!
Franklin,!founder!and!Executive!Chairman!of!Jarden!Corporation!(JAH),!announced!
that!Newell!Ru
ermaid!would!be!purchasing!Jarden!for!approximately!USD!$13.2!
illion,!or!$60.00!per!share.!!The!shareholders!of!JAH!would!receive!$21!in!cash!and!
0.862! NWL! shares! for! each! JAH! share! held.! ! The! combination!would! result! in! an!
enterprise! worth! approximately! $25! billion! and! would! offer! NWL! material! cost!
eduction! opportunities! due! to! the! complimentary! product! lines! of! the! two!
companies.!
Jarden*Corporation*(JAH)*
!
Jarden!Corporation!was! founded! in!1991! and! is! headquartered! in!Boca!Raton,!
Florida.!!JAH!manufactures,!markets,!and!distributes!consumer!products!worldwide.!!
Martin! Franklin! built! JAH! through! a! series! of! acquisitions1,! making! it! one! of! the!
largest!diversified!consumer!products!makers!in!the!United!States.! ! JAH!is!number!
one!in!many!of!the!product!categories!where!it!competes.!
!
The! company’s! Outdoor! Solutions! segment! offers! camping! and! outdoor!
equipment;! fishing! and! team! sports! equipment;! alpine! and! nordic! skiing,!
snowboarding,! snowshoeing,! and! in\line! skating! products;! technical! and! outdoor!
apparel!and!equipment;!personal!flotation!devices,!water!sports!equipment,!and!all\
te
ain!vehicle!gears;!and!inflatable!air!beds!and!accessories.!
!
Its!Consumer!Solutions!segment!provides!household!kitchen!appliances,!such!as!
lenders,! coffeemakers,! irons,! mixers,! slow! cookers,! tea! kettles,! toasters,! toaster!
ovens,!and!vacuum!packaging!machines;!air!purifiers,!fans,!heaters,!humidifiers!and!
vacuum! cleaning! systems;! clippers,! trimmers,! and! other! hair! care! products! for!
professional!use! in!the!beauty!and!ba
er!and!animal!categories;!electric!blankets,!
mattress! pads,! and! throws;! products! for! the! hospitality! industry;! and! scales! for!
consumer!use.!!!!
!
The!Branded!Consumables!segment!offers!fresh!preserving!jars!and!accessories;!
home!safety!products;!baby,!health,!and!home!care!products;!candle!products,!home!
fragrance!products,!auto!air!fresheners,!and!home!décor!accessories;!playing!cards!
and!card!accessories;!cords,!ropes,!and!twines;!foam!coolers,!reusable!ice,!protective!
packaging,! and! other! recreational! products;! arts! and! crafts! products;! firelogs! and!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1!See!JAH!ACQUISITONS!tab!in!the!case!workbook!for!a!history!of!JAH!acquisitions!
from!2002.!
Newell Ru
ermaid’s Acquisition of Jarden Corporation
!
! 2!
firestarters;! and! storage! organizers! and!workshop! accessories,! doors,! and! fencing!
products.!
!
Its! Process! Solutions! segment! produces! plastic! products,! including! closures,!
contact! lens! packaging,! football! helmets,! medical! disposables,! plastic! cutlery,! and!
igid! packaging;! specialty! nylon! polymers;! conductive! fibers;! monofilaments;!
industrial! zinc! products;! and! fa
icated! solid! zinc! strip! products;! and! supplies!
copper\plated!zinc!penny!blanks,!as!well!as!
ass,!
onze,!and!nickel\plated!finishes!
on!steel!and!zinc!for!coinage.2!!
!
Jarden! has! been! running! two! concu
ent! strategies! to! fuel! its! growth:!
acquisitions!and!product!development.!!Since!2002!JAH!as!spent!over!$9.0!billion!on!
acquisitions! of! category! leading! companies! in! niche! consumer! markets! with!
defensible!moats!around!the!business.! !Other!target! firm!characteristics! important!
to! the! JAH! acquisition! strategy! include! recu
ing! revenue!with!margin! expansion!
opportunities,! strong! cash! flow,! talented! management! teams,! and! attractive!
valuations!with!the!potential!to!provide!material!synergies.!
!
To! finance! the! two!most! recent! acquisitions! (Waddington!Group! and! Jostens),!
JAH!issued!18.4!million!shares!at!$54.50/share!in!Q3!2015,!and!another!10.0!million!
shares!at!$49.00/share! in!Q4!2015.! !Additionally,! JAH!bo
owed!$900!million! in!a!
senior!secured!loan!in!Q3!2015,!and!issued!$300!million!in!senior!notes!due!in!2023!
in!Q4!2015.!!JAH!also!bo
owed!$200!million!on!a!term!loan!in!the!same!quarter.!
!
Jarden’s! long\term! financial! goals! presented! to! its! investors! prior! to! the!
announcement!to!sell!include:3!
!
! Long\term!organic!sales!growth!of!3%!to!5%,!
! Expand!segment!earnings!margins!to!15%!by!year\end!2018,!
! Generate!annual!earnings!growth!of!at!least!10%,!
! Produce!at!least!$4.0!billion!of!cash!flow!from!operations,!
! Target!year\end!leverage!of!no!more!than!3!times!cash!flow!from!operations,!
! Deliver!adjusted!EPS!of!$4.00!by!year\end!2018.!
!
At! the! time! of! the! agreement,! Franklin! stated! "We've! been! doing! this! for! fifteen!
years,! we! could! have! done! it! for! another! fifteen! years,! but! the! reality! is,! the! fit's!
eally!good.! If!we!had!the!multiple!and!we!had!the!market!cap,!we'd!be!the!buyer.!
That's! the! way! we! operate! —! we! want! to! drive! value.! ! Furthermore,! Franklin!
observed:!"In!a!family!business!ownership,!you've!got!to!have!some!diversification,!
that's!my!intent."4!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2!http:
finance.yahoo.com/q/pr?s=JAH+Profile,!extracted!December!28,!2015!
3!Jarden!Investor!Presentation!November!2015.!
4!Newell!Ru
ermaid!to!buy!Jarden!for!$13.22!billion,!Reuters,!Monday!14!Dec!
2015.!
Newell Ru
ermaid’s Acquisition of Jarden Corporation
!
! 3!
Newell*Ru
ermaid*(NWL)*
!
Newell!Ru
ermaid! Inc.!was! founded! in!1903!and! is!headquartered! in!Atlanta,!
Georgia.! ! The! company! manufactures! and! markets! consumer! and! commercial!
products!worldwide.! ! It! operates! through! five! segments:!Writing,!Home!Solutions,!
Tools,!Commercial!Products,!and!Baby!&!Parenting.!
!
The! Writing! segment! offers! writing! instruments,! such! as! markers! and!
highlighters,!pens,!and!pencils;!art!products;!fine!writing!instruments;!and!labeling!
solutions!under!the!Sharpie,!Paper!Mate,!Expo,!Parker,!Waterman,!and!Dymo!Office!
and!names.!
!
The! Home! Solutions! segment! provides! indoo
outdoor! organization,! food!
storage,! and! home! storage! products;! durable! beverage! containers;! gourmet!
cookware,!bakeware,!cutlery,!and!kitchen!gadgets!and!utensils;!window!treatments;!
and! hair! care! accessories! under! the! Ru
ermaid,! Contigo,! bu
a,! Calphalon,!
Levolor,!and!Goody!
and!names.!
!
The!Tools!segment!offers!hand!and!power!tool!accessories;!industrial!band!saw!
lades;! tools! for! HVAC! systems;! and! label!makers! and! printers! for! industrial! use!
under!the!Irwin,!Lenox,!Hilmor,!and!Dymo!Industrial!
and!names.!
!
The! Commercial! Products! segment! provides! cleaning! and! refuse! products,!
hygiene! systems,! and! material! handling! solutions;! computer! carts;! and! wall\
mounted! workstations! under! the! Ru
ermaid! Commercial! Products! and!
Ru
ermaid!Healthcare!
and!names.!
!
Finally,!the!Baby!&!Parenting!segment!offers!infant!and!juvenile!products,!such!
as!car!seats,!strollers,!highchairs,!and!playards!under!the!Graco,!Baby!Jogger,!Aprica,!
and!Teutonia!
and!names.5!!
!
In! 2012! Newell! Ru
ermaid! implemented! their! “Growth! Game! Plan”,! a! new!
multi\year! corporate! strategy! to! accelerate! into! a! bigger,! faster! growing,! more!
global! and!more!profitable! company.!NWL! is! driving! its! “Growth!Game!Plan”! into!
action! through! a!
and\led! strategy,! a! commitment! to! superior! products! and!
differentiated!high\impact!innovation,!supported!by!an!executional!powerhouse!on!
the!ground!in!countries!around!the!world.”6!!!Growth!is!derived!organically!through!
product!development!and!through!acquisitions.!!Most!recently,!NWL!announced!the!
acquisition!of!Elmer’s!Products!Inc.!for!approximately!$600!million!in!October!2015.!!
Overall,!NWL!is!targeting!sales!growth!of!4%!to!5%.!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!
5!http:
finance.yahoo.com/q/pr?s=nwl&ql=1,!extracted!December!28,!2015!
6!http:
www.newellru
ermaid.com/OurCompany/Pages/OurHistory.aspx,!
extracted!December!28,!2015.!
Newell Ru
ermaid’s Acquisition of Jarden Corporation
!
! 4!
The*Deal*
!
Cost!reduction!and!complimentary!product! lines!were! the!primary!motives! for!
the!deal.!! !While!both!companies!have!a!track!record!of!successful!acquisitions!and!
product! development,! NWL’s! product! development! team! is! viewed! as! being!
stronger,!and!in!a!position!to!add!value!to!JAH’s!portfolio!of!
ands.!
!
"There!are!differences!in!the!portfolios,!and!the!business!models!in!some!places,!
ut!there!are!also!opportunities!connected!to!those!differences,"!Polk!said.!"So!with!
a! business! like! Jostens,! we! have! beautiful! fine\writing! business! with!
ands! like!
Parker! and! Waterman! that! would! be! perfect! graduation! gifts! through! a! Jostens!
usiness!model.!So!there's!cross\sell!opportunities!you!don't!intuitively!think!about!
until!you!start!to!unpack!this."7!
Polk!further!explained!that!“scale!does!matter…it!means!we!become!a!lot!more!
important! –! that! means! we! get! the! opportunity! to! have! more! long\term!
conversations! about! the! categories! with! retailers,! and! it! means! we! have! the!
opportunity!to!talk!to!them!how!to!build!category!with!shoppers.”8!!For!example,!the!
largest! customer! for! both! NWL! and! JAH! is! Walmart.! ! Therefore,! the! combined!
company!(Newell!Brands)!has!the!opportunity!to!gain!more!power!in!negotiations!
elated! to! pricing,! inventory,! and! product! placement.! ! Other! large! retailers! that!
purchase! from! NWL! and! JAH! include! Target,! Amazon,! Ca
efour,! Costco,! TESCO,!
Kroger,!Lowe’s!Home!Depot,!and!Walgreens.!
The! combination! is! expected! to! generate! approximately! $500! million! in! cost!
saving! synergies! over! the! next! 4! years.! ! The! areas! offering!most! of! these! savings!
include! expected! reductions! in! transportation! costs! for! products! and! materials!
sourced! in! Asia! and! a! reduction! in! important! raw!materials! costs,! such! as! resin,!
which!both!companies!consider!a!primary!manufacturing!input.!
!
Transaction*Highlights*
!
Jarden! shareholders!will! received! $21! in! cash! and!0.862!NWL! shares! for! each!
share! of! JAH! common! stock! for! an! estimated! aggregate! value! of! $60/share! JAH!
share,! representing! an! approximate! 24%! premium! over! JAH’s! 30\day! volume!
weighted!average!share!price!(as!of!12/11/15).! !Newell!Ru
ermaid!shareholders!
will!own!approximately!55%!of!the!new!company!to!be!called!Newell!Brands.!
!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
7!Newell!Ru
ermaid!to!buy!Jarden!for!$13.22!billion,!Reuters,!Monday!14!Dec!
2015.!
8!Inside!Newell!Ru
ermaid’s!Blockbuster!$15.4!billion!Deal!for!Jarden,!TheStreet,!
December!14,!2015.!
Newell Ru
ermaid’s Acquisition of Jarden Corporation
!
! 5!
The! transaction!will! be! funded!with! cash! on! hand,! debt,! and! equity! issued! to!
Jarden!shareholders.!!!Following!the!acquisition,!the!Newell!Brands!will!manage!its!
leverage! to!historical! levels! to!maintain! its! investment!grade!bond! rating.! !Newell!
Brands!also!expects!to!maintain!Newell!Ru
ermaid’s!dividend.!
!
JAH!has!a!no\shop!provision!with!a!“fiduciary!out,”!indicating!that!it!cannot!talk!
to! other! potential! acquirers!while! the! transaction! is! pending.! ! However,! JAH!may!
talk! to!prospective!buyers!who!make!unsolicited,!bona! fide!offers.! ! If!one!of! these!
offers!is!accepted,!JAH!will!owe!NWL!a!termination!fee!of!$385!million.!
!
Michael!B.!Polk!will!become! the!CEO!of!Newell!Brands!and!Michael!T.!Cowhig,!
cu
ently!the!non\executive!Chairman!of!Newell!Ru
ermaid,!will!become!the!non\
executive!Chairman!of!a!thirteen!member!Newell!Brands!Board!of!Directors.!!Martin!
E.! Franklin,! Founder! and!Executive!Chairman!of! Jarden,! and! Ian!G.!H.!Ashken,!Co\
Founder,!Vice!Chairman!and!President!of!Jarden,!will!join!the!Board!of!Directors!of!
Newell!Brands.!
!
As!a!result!of! the!deal,!Mr.!Franklin!will!receive!$142!million! in!cash!and!$245!
million!worth!of!shares!in!Newell!Brands.! !Mr.!Franklin!could!also!receive!as!much!
as!$132!million!in!cash,!stock,!and!other!benefits!if!his!contract!isn’t!renewed!within!
two! years! after! the! deal! closes.! ! Analysts! feel! that! this! contract! is! likely! to! be!
triggered,!although!the!contract!could!be!renegotiated!as!part!of!the!deal.9!!! !
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
9!Newell!Ru
ermaid!to!Acquire!Jarden!for!$15!Billion,!Wall!Street!Journal,!
December!14,!2015.!
Newell Ru
ermaid’s Acquisition of Jarden Corporation
!
! 6!
Questions*
!
1. What! is! the! strategy! driving! the! combination! of! Newell! Ru
ermaid! and!
Jarden!Corporation?!!Are!both!companies!equally!positioned!to!benefit!from!
the!combination?!
!
2. What!are! the!consequences!Newell’s!acquisition! financing!choices?! !Do!you!
elieve!NWL!is! financing!the!acquisition!of! JAH!for! the!maximum!benefit!of!
its!shareholders?!!Why!or!why!not?!
!
3. Based!on!your!assessment!of!the!market’s!response!to!the!announcement!of!
the!combination,!what!is!the!value!of!the!anticipated!synergies?!
!
4. What!is!the!maximum!offer!NWL!should!make!to!acquire!JAH?!
!
5. As! a! shareholder! of! Jarden! Corporation,!would! you! tender! your! shares! for!
$60?!!If!not,!what!is!the!minimum!acceptable!price!for!your!shares?!
NWL Analysis
Newell Ru
ermaid, Inc. (NYS: NWL)
Millions
As Reported Annual Income Statement Common Sized Income Statement
Report Date 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 5-yr CAGR 10-yr CAGR 14-yr CAGR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Mean Median CV
Net sales 6,934.7 6,909.3 7,453.9 7,750.0 6,748.4 6,342.5 6,201.0 6,407.3 6,470.6 5,577.6 5,759.2 5,864.6 5,902.7 5,692.5 5,727.0 0.53% -1.63% -1.36% 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Cost of products sold 5,103.2 5,046.6 5,394.2 5,682.8 4,857.9 4,448.1 4,131.0 4,150.1 4,347.4 3,528.1 3,588.4 3,659.4 3,673.6 3,514.3 3,523.6 -0.03% -3.16% -2.61% 0.74 0.73 0.72 0.73 0.72 0.70 0.67 0.65 0.67 0.63 0.62 0.62 0.62 0.62 0.62 0.67 0.67 0.0719
Gross margin 1,831.6 1,862.7 2,059.7 2,067.2 1,890.5 1,894.4 2,070.0 2,257.2 2,123.2 2,049.5 2,170.8 2,205.2 2,229.1 2,178.2 2,203.4 1.46% 1.54% 1.33% 0.26 0.27 0.28 0.27 0.28 0.30 0.33 0.35 0.33 0.37 0.38 0.38 0.38 0.38 0.38 0.33 0.33 0.1467
Selling, general & administrative expenses 606.8 839.5 1,026.6 1,074.7 1,020.7 1,051.8 1,153.7 1,253.9 1,319.4 1,199.5 1,291.1 1,353.7 1,357.4 1,287.2 1,324.4 2.00% 2.64% 5.73% 0.09 0.12 0.14 0.14 0.15 0.17 0.19 0.20 0.20 0.22 0.22 0.23 0.23 0.23 0.23 0.18 0.20 0.2539
Depreciation & amortization 292.6 328.8 280.7 278.2 249.1 213.8 193.3 177.0 183.3 175.1 172.3 161.6 163.7 158.9 156.1 0.04 0.05 0.04 0.04 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.1864
Operating income (loss) 932.2 694.5 752.4 714.3 620.7 628.8 723.0 826.3 620.5 674.9 707.4 689.9 708.0 732.1 722.9 1.38% 1.54% -1.80% 0.13 0.10 0.10 0.09 0.09 0.10 0.12 0.13 0.10 0.12 0.12 0.12 0.12 0.13 0.13 0.11 0.12 0.1302
Interest expense 130.0 137.5 110.6 140.1 119.3 127.1 132.0 104.1 137.9 146.3 121.9 88.4 80.4 62.3 64.3 0.02 0.02 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.03 0.02 0.02 0.01 0.01 0.01 0.02 0.02 0.2349
Interest income 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.3 3.5 2.2 4.3 2.0 3.9 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.4281
Impairment charges 0.0 0.0 0.0 289.4 374.0 34.4 0.0 0.0 299.4 0.0 0.0 382.6 0.0 0.0 0.0 0.00 0.00 0.00 0.04 0.06 0.01 0.00 0.00 0.05 0.00 0.00 0.07 0.00 0.00 0.00 0.01 0.00 1.7058
Restructuring costs 48.6 66.7 122.7 245.0 52.1 72.2 66.4 86.0 120.3 100.0 77.5 50.1 56.1 111