Spectrum Deal Brings LitterMaid to United Pet

Spectrum Brands of Atlanta, Ga., and appliance company Russell Hobbs Inc. of Miramar, Fla., have reached an agreement to merge the two companies into a $3 billion consumer products company. Under the deal, LitterMaid automated litterboxes and accessories would join the United Pet Group business unit, which includes such brands as Tetra, 8 in 1, and Dingo.

If the deal goes through, the combined company would retain the Spectrum Brands and add a fourth reporting business unit comprised of Russell Hobbs' portfolio of small appliance brands, including Black & Decker and George Foreman. Spectrum's existing business units would continue to operate under their existing management, including John Heil, president of global pet supplies, and Dave Lumley, president of the global batteries and personal care and the home and garden business units.

Russell Hobbs' CEO Terry Polistina would head up the home appliances business unit.

The pet business would account for about 20 percent of the combined company's sale, compared to 25 percent of Spectrum's current sales and about 3 percent, including pest control products, of Russell Hobbs sales. Black & Decker's ultrasonic pest repellents will join Spectrum's home and garden unit if the deal closes.

The deal also includes a 45-day "go shop" period during which Spectrum can look for "alternative proposals," the companies reported. The companies expect the deal to close this summer.

Harbinger Capital Partners, which owns Russell Hobbs and a roughly 40 percent stake in Spectrum, played a key role in creating the deal. Harbinger would own roughly 63.7 percent of the combined company by exchanging $158 million of Russell Hobbs debt and $207 million of Russell Hobbs preferred stock for common stock of the new Spectrum Brands. Spectrum would remain public and continue to seek to list its stock on the NYSE.

"This transaction will enable the combined company to reap the benefits of a deep and diverse portfolio of well known consumer brands, a strong balance sheet, significant synergies and enhanced growth opportunities," said Kent Hussey, CEO of Spectrum. "This transaction also provides an opportunity to de-lever our capital structure, lower the cost of our combined debt and provide greater liquidity, an improved risk profile and longer-term financing for our company."

Credit Suisse, Bank of America and Deutsche Bank have committed to provide about $1.8 billion in financing for the deal, which would allow Spectrum to refinance its existing senior debt and a portion of Russell Hobbs' existing senior debt and provide a $300 million revolving credit facility, the companies reported. Currently, Spectrum's term loans are due in 2012; the refinancing will extend that date until 2016 and 2017.

Spectrum reported sales for its global pet supplies business were $137 million for its first quarter ended Jan. 3, 2010, compared to $132.4 million in the year-ago period. The company said strong sales of its Dingo, Nature's Miracle and consumable aquatics products were the major drivers for the unit. EBITDA (earnings before income taxes, depreciation and amortization) for the pet segment increased 25.7 percent to $22.1 million from $17.6 million for the quarter. 

Overall, Spectrum reported a net loss of $60.2 million on sales of $591.9 million for the quarter. The loss included roughly $45 million of charges related to Spectrum's reorganization under bankruptcy protection and its subsequent "fresh start."