Commentary: Energizer’s Purchase of Spectrum Brands Battery Division Increases Competition for Berkshire’s Duracell

(BRK.A), (BRK.B)

The announcement that Energizer Holdings, Inc. has entered into a definitive agreement to acquire Spectrum Brands’ Global Battery and Portable Lighting Business for $2.0 billion in cash means increased competition for Berkshire Hathaway’s Duracell Batteries.

The acquisition puts the Varta and Rayovac brands into Energizer’s product portfolio.

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 approximately $100 million and including estimated run-rate synergies of $80 to $100 million and the costs to achieve.

The transaction is expected to deliver modest accretion to Energizer’s 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.

“The acquisition of Spectrum Batteries represents a compelling strategic, operational, and financial fit for Energizer,” said Alan R. Hoskins, Chief Executive Officer of Energizer. “The combination will enable us to leverage Spectrum Brands’ manufacturing assets, significantly expand our international business and enhance our long-term brand building capabilities as we broaden our portfolio with the Varta and Rayovac brands and our geographies with Spectrum Batteries’ passionate global colleagues. We have great respect for Spectrum Batteries and the strong business its colleagues have built, and are excited to bring together the talented colleagues from around the globe from both organizations to drive our business to new heights. In addition, the top-line and free cash flow growth from this acquisition, combined with the opportunity to realize meaningful synergies, will further enhance our ability to drive long-term shareholder value.”

Energizer intends to fund the acquisition through a combination of existing cash and committed debt facilities, expected to consist of a new term loan and senior notes.

As for Berkshire’s Duracell, it will still be the biggest player in the alkaline battery market. Sales of Duracell batteries in the U.S. alone topped $1 billion in 2016, eclipsing Eveready’s and Rayovac’s combined sales.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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