Warren Buffett's Duracell, Energizer in race to charge up Eveready
Some bulge bracket PE firms like Blackstone, KKR, Kedaara too are expected to put in bids.
Energizer, which already owns the Eveready brand in the US and China, is likely to face competition from rival Duracell , owned by Warren Buffett’s Berkshire Hathaway, said three people directly involved with the ongoing negotiations. Some bulge bracket private equity firms such as Blackstone and KKR as well as domestic funds like Kedaara too are expected to put in bids.
Eveready, part of the diversified Khaitan-led Williamson Magor group with interests in tea, engineering and consumer products, is a leading player in dry cell batteries and flashlights. The promoters own 45% of the publicly traded company, having acquired it for Rs 300 crore in the early 1990s after warding off Nusli Wadia’s Bombay Dyeing. The transaction is likely to trigger an open offer for an additional 26% of the company.
BIDS EXPECTED THIS WEEK
The brand was owned by the erstwhile Union Carbide India since 1905. Union Carbide exited India after the methyl isocyanate leak from its Bhopal plant led to one of the world’s worst industrial disasters in 1984.
Saddled with debt of over Rs 1,000 crore at the group holding company, the Khaitan family had appointed Kotak Mahindra Bank to run a formal auction process to shortlist a buyer. The Williamson Magor group consists of the world’s largest bulk tea producer McLeod Russel, Kilburn Engineering and McNally Bharat.
All nonbinding bids are expected to be submitted this week. The selected candidates will start diligence following which a binding offer will be made.
An Eveready Industries spokesperson declined to respond to an emailed questionnaire. Duracell and Energizer didn't respond to queries. Blackstone and KKR declined to comment. Manish Kejriwal, managing partner, Kedaara Capital, was unavailable for comment.
There is a possibility that the Khaitans will retain a stake of 10-15%.
“They are flexible and are looking at all options and will take a final call based on the final offers on the table,” said an executive. “There is significant traction for the asset for its scale and brand equity. Expect a 30-40% control premium to the current market price.”
STOCK ON THE RISE
The Eveready Industries stock has appreciated 12% since January in anticipation of a deal. On Monday, it closed at Rs 208.50 for a market value of Rs 1,515.53 crore.
The company sells over 1.2 billion batteries and 25 million flashlights every year and controls more than 50% of the market in the Indian dry battery and flashlight industry. Panasonic and Nippo are the other two main competitors in the organised sector. Chinese companies dominate the unorganised segment.
The company clocked Rs 1,451.95 crore in sales and profit of Rs 54.74 crore in FY18. The segment has faced significant headwinds due to increased competition from low-cost Chinese imports. The management is confident about potential gains in the battery segment after the introduction of BIS norms by April. These classify batteries on the basis of longevity and bode well for the domestic industry as the Chinese imports typically don’t last.
The company has diversified into confectionery and packaged tea while extending its LED range. It has six manufacturing facilities in Kolkata, Noida, Haridwar, Chennai, Lucknow and Assam. Although a dominant force in the organised flashlight market, the segment has been hit by mobile phones that do the same job. The group has been divesting noncore assets such as land to slash debt but selling the flagship will be its biggest step in this regard.
“The asset-monetisation phase should drive RoCE (return on capital employed) to 1 2% by FY20 from a meagre 5% in FY17,” said Motilal Oswal analyst Niket Shah. “The company is on track for not only de-risking the business model, but also recording faster growth over the next few years driven by higher growth in the appliances, lighting and newly planned confectionery segments.”
People involved in the negotiations said the promoters expect a significant premium to the current market price as they believe the stock is deeply undervalued as it fell significantly in 2018. On February 12, 2018, it was at Rs 378.90.
In January, Energizer completed a $2 billion acquisition of Rayovac from Spectrum Brands, pushing it closer to overtaking Duracell as the top seller of batteries in the world. This deal was struck at a valuation of 2.8 times turnover. Under Berkshire Hathaway, which acquired Duracell in February 2016, the company has yet to make a headline-grabbing deal to match Energizer. The company incurred an $8- million loss in 2016 in part due to merger-related costs of its transfer to Berkshire Hathaway.