Clorox to buy First Brands for $2 billion in stock, debt Struggling firm makes Glad bags, STP goods

October 20, 1998|By BLOOMBERG NEWS

OAKLAND, Calif. -- Clorox Co. agreed to buy First Brands Corp. yesterday for about $2 billion in stock and assumed debt, as the largest U.S. maker of laundry bleach seeks to boost sales by adding Glad bags and STP auto products to its stable of brands.

First Brands shareholders will get about $39 a share in Clorox stock, a 65 percent premium to Friday's price, or a total of about $1.52 billion. Clorox will also take on $440 million in debt.

Clorox, which is twice the size of First Brands and makes products such as Formula 409 cleaner and Combat pesticide, is betting its clout with big retailers and stringent cost controls will turn around the company. First Brands has struggled for two years with the rising cost of plastic, higher marketing expenses for new products and inventory cutbacks by Wal-Mart Stores Inc., its largest customer.

"The acquisition adds great brands that are market leaders," said Buckingham Research Group analyst Paul Mackey. "Clorox, with its marketing resources, can make even better use of these brands."

Clorox shares yesterday rose $4.25, to $104. First Brands, which closed Friday at $23.625, rose $12.375, to $36.

The move to buy First Brands, which also makes Jonny Cat litter and Starterlogg fire logs, will add about $1.2 billion in annual revenue to Oakland, Calif.- based Clorox, which has sales of $2.7 billion. It is by far the largest acquisition in Clorox's 85-year history.

Clorox said it expects to cut $90 million in costs after the acquisition. The purchase will add to earnings in the current fiscal year and will result in a pretax charge of $110 million for acquisition costs including asset write-downs, Clorox said. Danbury, Conn.-based First Brands' net income before a charge fell 9.6 percent to $45.4 million, or $1.12 a share, in the year that ended June 30.

A small number of job cuts are likely, though it is too early to say precisely how many, Clorox officials said.

Clorox has a bleach-making facility on Perryman Road in Harford County where it employs 175 full-time workers in its 360,000-square-foot facility. The deal is not expected to have an impact on that facility, a corporate spokesman said.

Clorox has sought to acquire brands that are first or second in market share. Its larger acquisitions include the purchase of car-care products maker Armor All for $360 million in late 1996, as well as Black Flag insecticide in 1995.

Clorox sells more than four-fifths of its household cleaning and laundry products in the United States. That domestic concentration let the company's profit to hold up amid a slowdown abroad.

Pub Date: 10/20/98

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