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Clorox to buy First Brands
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October 19, 1998: 12:13 p.m. ET
$2B purchase will expand presence in cat litter, storage bags; 1Q net grows 15%
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NEW YORK (CNNfn) - Clorox Co. agreed to acquire First Brands Corp., the maker of Glad-Lock storage bags and Scoop Away cat litter, for $2 billion in stock, the consumer products marketer said Monday.
In addition, Clorox, which makes Fresh Step cat litter as well as cleaning products, said net income in its fiscal first quarter rose 15 percent, slightly surpassing analysts' consensus estimate.
But on top of strengthening Clorox's presence in the cat litter market, the deal presents an opportunity for the Oakland, Calif.-based company to enter the expanding markets for storage bags and wraps at a time when its namesake laundry products and its Match Light charcoal brands are declining.
The market segment for storage bags and wraps is projected to grow 2 to 2.5 times faster than the overall grocery market, which annually expands 1 to 2 percent in conjunction with the size of the population, Clorox said.
"We see no reasons why that trend won't continue," said G. Craig Sullivan, chairman and chief executive of Clorox.
In addition to cat litter and bags, First Brands makes STP automotive products and recently completed the purchase of Handi Wipes.
"I know that size alone doesn't always mean much, but this gives us a lot more mass, and we need that," Sullivan said.
Under terms of the definitive agreement, First Brands shareholders will receive Clorox stock valued at $39 for each First Brands share representing a 65-percent premium. Clorox also will assume approximately $440 million of First Brands debt.
Shares of First Brands (FBR) shot 12-1/2 higher to 36-1/8 Monday. Clorox stock (CLX) tumbled 2-3/16 to 97-9/16.
The agreement was approved by both boards. The transaction will be treated as a pooling of interests for accounting purposes and is structured to be non-taxable to shareholders.
Clorox added that it expects to achieve annual cost savings of about $90 million following the acquisition through identified cost reductions, the majority of which are expected to be realized by the end of the first year following the completion of the transaction.
The company said it expects the transaction to add to earnings in fiscal 1999, before $110 million in estimated one-time transition costs as well as the impact of certain asset write-downs.
The combination is subject to First Brands shareholder approval, expiration of the Hart-Scott-Rodino waiting period and other conditions customary in transactions of this nature.
J.P. Morgan was advisor to Clorox and Lehman Brothers advised First Brands.
Separately, Clorox said net income in the latest quarter rose to $85.4 million, or 81 cents a share, from $74.4 million, or 71 cents.
Analysts had anticipated 80 cents, according to First Call.
Despite flat international sales, revenue rose 5.6 percent to $685.9 million, with growth coming from its cleaning products, Armor All, Brita water filters and cat litter.
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Clorox
First Brands
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