Energizer Holdings Inc. (ENR), a leading manufacturer and marketer of batteries, lighting and personal care products announced that it has won the bid to acquire substantially all the assets and certain liabilities of American Safety Razor Co. for $301 million in cash in a competitive bidding process in the bankruptcy court proceedings.
 
However, the acquisition is still subject to regulatory approval.
 
Based in New Jersey, privately held, American Safety Razor Co., a primary competitor of Energizer had gone bankrupt and filed for Chapter 11 (bankruptcy) in July. The bankruptcy was a result of increased competition in its shaving products category.
 
American Safety Razor sells shaving razors to drug stores such as Walgreen Co. (WAG) under the store’s own brand. American Safety Razor is the fourth largest manufacturer and distributor of wet shave products and is a leading supplier of private-label razors and blades such as Matrix3, M5Magnum, Solara and Mystique.
 
The company was hard hit by the loss of an important customer Wal-Mart Stores Inc. (WMT) in 2009. American Safety had previously accepted to sell its assets to its first-lien lenders, led by UBS AG (UBS), for an undisclosed amount to call off the $244 million debt owned by the company.
 
Energizer is the parent company of Schick Wilkinson Sword (“SWS”), the second largest manufacturer and marketer of men’s and women’s wet shave products in the world.  SWS products are sold in over 140 countries, and its product portfolio includes Hydro, Quattro, Intuition, Xtreme 3 and Protector.
 
The acquisition of American Safety Razor wet shave business will provide an important strategic fit and opportunity for the Energizer Personal Care business, the company pointed out. Moreover, the addition of American Safety Razor to Energizer’s Schick Wilkinson Sword business will expand product portfolio, broaden customer base and help the company stand against tough competition in the category.
 
Acquisitions are an integral part of Energizer’s growth strategy. Energizer Holdings has generated top-line growth through strategic expansions (organic growth in the razor blade and battery businesses and a number of acquisitions in personal care).
 
We remain upbeat about Energizer’s personal care division, which grew entirely from acquisitions. The March 2003 acquisition of Schick-Wilkinson Sword business from Pfizer Inc. (PFE), the second largest global manufacturer of wet shave products for men and women, was a major growth driver for the company. The acquisition enabled the company to increase wet shave sales to $1.12 billion in 2009 from just $625 million in 2002, a CAGR of 8.7%.
 
In June 2009, the company acquired the Edge and Skintimate shave preparation business from Johnson & Johnson (JNJ) for $275 million, adding shaving creams and gels to its SWS razor business portfolio. Skintimate is the leader in the women’s pre-shave product market, followed by Gillette’s Satin Care.
 
Edge is the number 2 company in the domestic men’s pre-shave product market, after Procter & Gamble Co. (PG). Therefore, management believes the strategic acquisitions will better position Energizer to compete with Procter & Gamble and deliver cost synergies of $5 million to $10 million. The acquisition is further expected to provide increased revenue synergies of approximately $150 million annually.
 
Energizer Holdings’ third quarter 2010 earnings beat the Zacks Consensus Estimate by 39 cents per share or 41% based on higher sales, launch of new Schick Hydro, meaningful cost-saving initiatives, favorable foreign currency impact, higher battery sales, lower-than-expected A&P spending and a successful integration of the Edge and Skintimate brands.
 
With an improved operating leverage and organic growth, the company stands to benefit from its restructuring initiatives, product innovations, strong cash flow, increased debt repayment, share repurchases or acquisitions in the near term. However, investors should note that intense competition, inventory destocking and weak consumer environment are potential headwinds.
 
Energizer Holdings is currently a Zacks Rank #2 stock (short-term Buy rating) while longer-term, it has an Outperform rating.
 
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