Energizer Bunny Will March To Its Own Beat

The Energizer Bunny is taking its “positive energy” and setting up its own Household Products company, leaving sibling Personal Care brands such as Schick, Edge, Playtex, Banana Boat, Skintimate and Hawaiian Tropic to fend for themselves. Wall Street loved the news, with Energizer Holdings shares soaring 14.3% yesterday.

“Reason for the split: to give each company a clearer focus,” sums up Bruce Horovitz in USA Today. “The move comes at a time when competitive pressures are increasingly forcing major manufacturers to ultra-focus on what they do best.”

Energizer Holdings, which is based in St. Louis, expects the separation to be completed by the second half of 2015. It was spun off from pet food maker Ralston Purina in 2000 and then set out on an acquisitions spree, starting with Schick and Wilkinson Sword in 2003, followed by Playtex in 2007, Edge and Skintimate brands in 2009 and American Safety Razor/Personna in 2011. 

But “after years of buying up brands, Energizer Holdings has decided not to keep on going as a single consumer-products conglomerate,” as Michael de la Merced’s lede in the New York Times says.

“Energizer noted that its household products division” — which also includes Eveready products — “raked in $1.9 billion in the twelve months trailing March 31, 2014, while its personal care products division brought in $2.6 billion in the twelve months trailing March 31, 2014,” Forbes’ Maggie McGrath writes.

“Since becoming an independent company in 2000, Energizer has built two successful divisions and each is now well-suited to realize its full potential on a standalone basis,” CEO Ward M. Klein said in a statement. “We expect that Household Products will be well-positioned to leverage its leading brands and product portfolio to generate significant cash flows. And the Personal Care business has achieved scale to be able to enhance its focus on continuing innovation and to drive top-line and market share growth.”

The split seemed to represent an abrupt change of heart, some observers point out.

The Wall Street Journal’s Serena Ng and Erin McCarthy report that Klein told an investment conference in March “that he didn't see how separating the businesses would benefit shareholders and cited ‘dissynergies and costs’ that a split could cause….”

When Klein was asked what had changed during a conference call yesterday, he replied that the “earlier comments reflected ‘how we felt at the time,’” Ng and McCarthy write, adding that he did not respond to Bernstein Research analyst Ali Dibadj’s question “about  whether an activist investor was involved.”  

Klein did maintain “this is not something we just came up with in the past 45 days. At this point in time, we feel like it makes perfect sense.” A transcript of yesterday’s earnings call with analysts can be found on Seeking Alpha.

Whatever the catalyst for the announcement, Dibadj seems to like what he sees. “This split may provide further operational benefits and increases the chance of mergers and acquisitions,” he said, according to Reuters’ Siddharth Cavale. Indeed, “both of the former Energizer companies could be potential candidates for an acquisition” themselves, Dibadj tells Bloomberg Businessweek’s Lindsey Rupp, who points out that other companies have made similar efforts to focus recently.

“In 2012, Kraft Foods spun off its North American grocery unit and changed its name to Mondelez International to focus on its global snacks business,” Rupp writes. “That same year, Sara Lee split into Hillshire Brands and a European-based coffee and tea company called D.E. Master Blenders 1753.”

“We're surprised by the decision to split the company, but think it makes sense,” BMO Capital Markets analyst Connie Maneaty tells Cavale. “The personal care segment may realize a higher valuation if it is not bound to the battery business.” 

The WSJ’s Ng and McCarthy point out that Klein is “a longtime Energizer executive who in the 1980s helped launch the advertising campaign featuring the tireless pink bunny.” 

If all goes according to plan, Klein will serve as executive chairman of the board of the standalone Personal Care company. David Hatfield, currently president and CEO of Energizer Personal Care, will be CEO. J. Patrick Mulcahy, currently chairman of the board, will be executive chairman of standalone Household Products. Alan Hoskins, currently president and CEO of Energizer Household Products, will serve as CEO of standalone Household Products.

For all the positives that might result from the division of the company, Reuters’ Breakingviews columnist Kevin Allison writes in the New York Times that “the proposed transaction doesn’t address the batteries-to-tampons conglomerate’s bigger challenge: mustering more resources to take on industry gorilla Procter & Gamble.”

It joins a long and distinguished list in that regard.

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