Energizer Holdings Inc. (ENR), which has a $9 billion market cap, plans to spin-off its personal-care products division from its iconic batteries business in a move that should unlock value for shareholders. The tax-free spin-off was expected to be completed by July 1, 2015.
On April 30, 2014, Energizer announced it would split the company into two separate publicly listed companies. Energizer’s management says a standalone personal products company will create greater value for shareholders as Energizer forges ahead with cost-cutting efforts to stem the weaknesses in the household products division, which makes disposable batteries under the Energizer and Eveready brands. Investors have embraced the spin-off plan. Energizer’s stock has generated a total return of 50% since the spin plan was announced 13 months ago (vs. 15% for the S&P 500 Index).
Sales of disposable batteries have been in a secular decline as consumers shift to products that use rechargeable batteries. Furthermore, Energizer’s batteries have been losing market share to Duracell. Meanwhile, Energizer’s Personal Care segment has a number of rising products such as razor brands Schick and Edge, personal-care products from its Playtex brand, Banana Boat and Hawaiian Tropic. We suspect that the resulting smaller companies could become potential takeover targets. Both of the companies could be acquired by larger consumer products companies looking to expand into the personal products business.
Headquartered in St. Louis, Energizer Holdings is one of the largest manufacturers of batteries, lighting and personal care products. Energizer was spun off from Ralston Purina in 2000. Its products are marketed and sold in more than 160 countries through direct sales, mass merchandisers and wholesalers.
Energizer generated revenues of $4.45 billion in fiscal 2014, and personal care products made up 58.7% ($2.61 billion). Household products contributed 41.3% ($1.84 billion) of revenues. This unit offers flashlights, lanterns and other battery-powered lighting products. The company’s battery business produces alkaline, lithium, carbon-zinc and rechargeable batteries. Energizer generates 51% of its sales domestically and 49% from international operations.
Energizer’s plan to split into two separate stocks will allow the two units with disparate product lines to focus more on their respective core capabilities. Each standalone company will be able to focus on its distinct commercial priorities and allocate its own resources to meet the needs of its business. Household products, with batteries and portable lighting products, is expected to generate strong margins and significant cash flow. Personal care, on the other hand, is expected to be a leading pure-play consumer products company with an attractive portfolio of brand names.
Shareholders of Energizer will have received one share of Energizer common stock for each share of ENR common stock held at of close of business on June 16, 2015, the record date for this transaction. The distribution of shares was scheduled to be completed on July 1, 2015. On July 2, shares of Energizer Spinco were expected to begin trading on the NYSE under the symbol “ENR.” Post spin-off, the spun-off unit will retain and operate under the name Energizer Holdings, Inc., while the parent will change its name to Edgewell Personal Care Co. and is expected to trade on NYSE under the symbol “EPC.”
We value the Energizer spin-off at $2.1 billion, or $34 per share using 9x fiscal year 2016 EBITDA. Proctor & Gamble recently sold Duracell to Berkshire Hathaway at about 9x EBITDA (see “Sum of parts”). This seems like a reasonable estimate for ENR post-spin, considering the similarity in operations.
We value Edgewell Personal Care (parent) at $7.5 billion, or $121 per share of ENR using a 13.7x FY16 EBITDA (a peer group multiple). We value ENR (pre-spin) at $9.7 billion, or $156.00 per share using sum-of-the-parts valuation methodology.