Spectrum Brands Inc. (SPC: Quote), a Georgia-based provider of personal care products and pet supplies, Monday said it failed to secure the consent of senior lenders to finalize the proposed sale its global pet supply business to Florida-based household appliances distributor Salton Inc. (SFPI.PK). Spectrum requires the consent of majority of its senior lenders to proceed with the sale. SPC dropped more than 7% on the NYSE before closing Monday's trading.
In May, Spectrum agreed to sell United Pet Group to Salton for about $692.5 million in cash and $222.5 million in debt securities. Consent from senior lenders was a condition to the completion of the sale. Spectrum planned to use the proceeds from the sale to pay part of its debts. The transaction that was expected to close in the summer of 2008 would have enhanced Salton's household appliances and pet supplies business.
United Pet Group, a manufacturer of branded pet supplies for fish, dogs, cats, birds and other small domestic animals, posted revenues of $563 million in 2007. Upon completion of the sale, United Pet Group would have operated as a standalone business with dedicated sales and marketing as well as research and development. John Heil, Co-Chief Operating Officer and President, Global Pet Supplies, was expected to continue to leading United Pet Group under Salton's ownership.
Salton expects to integrate its existing LitterMaid self-cleaning cat litter box business into United Pet Group. The current deal builds on the successful integration of Salton with Applica, a unit of APN Holding Co., acquired by Salton last year through a merger of one of its units with APN.
For Spectrum, sale of United Pet Group is a critical step toward achieving one of its key priorities of improving the overall capital structure and reducing debt. The company expects the deal to decrease its total leverage ratio of about 8.5 as of March 30, 2008 to about 7.8, on a pro forma basis, while ensuring improved flexibility in the remaining core businesses.
On May 14, analysts at Sun Trust Robinson Humphrey downgraded Spectrum from 'buy' to 'neutral.' In a research note, the analysts also notified that the overall credit and M&A markets were deteriorating. Although Spectrum has been able to stabilize its business over the past year, there were limited catalysts for Spectrum Brands' share price in the near term, the analyst added.
In December 2007, Spectrum sold the Canadian division of its Home & Garden business segment, operating under the name Nu-Gro, to raise funds to reduce outstanding debt balance.
Spectrum, however, said that the sale of its global pet business to Salton, Inc. and its wholly owned subsidiary, Applica Pet Products LLC, upon the negotiated terms is in the best interests of the company and its shareholders, as well as its other constituencies. Spectrum added that the definitive agreement continues to be in full force and effect, and it intends to comply with obligations under the arrangement in order to satisfy the conditions necessary to consummate the sale of its global pet supply business.
Shares of SPC closed Monday's trading at $2.55, down $0.16 or 5.90%, on a volume of about 584 thousand. The stock has been trading in a range of $2.50 to $6.93 for the past one year, with a three-month average volume of about 459 thousand shares.
SFPI.PK closed the day's trading at $0.22, up $0.02 or 7.32%, on a volume of more than 1 thousand shares.
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by RTT Staff Writer
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