In a deal that will launch Clorox Co. into the plastic wrap and bag market, the Oakland, Calif.-based firm is acquiring First Brands Corp. for about $2 billion.
Under terms of a definitive agreement approved by both boards, First Brands shareholders will receive Clorox shares equal to a value of $39 for each First Brands share outstanding. Should Clorox shares trade outside the range of $80-$115, the value that First Brands' shareholders receive for Clorox's shares would be adjusted accordingly. Clorox also will assume about $440 million of First Brands' debt.
First Brands' largest and principal product line is its Glad trash bags, food bags and food wrap. About 69 percent of the company's $1.2 billion in sales come from the household product segment, which is primarily plastic, Clorox spokesman Gil Roeder said in a telephone interview. Clorox will grow the line, he said. The Glad line also makes up 75 percent of First Brands' international sales.
``We're excited by the growth prospects in the bags and wraps business,'' Roeder said.``Clorox believes that category is growing much more quickly than most consumer products in the U.S.''
Clorox, a $2.7 billion company, manufactures laundry additives, household cleaners, charcoal, auto-care products, cat litter and other products. Danbury, Conn.-based First Brands also makes auto-care products, cat litter and home fireplace products, in addition to plastic bags and wrap.
``The bags and wraps were a major attraction,'' Roeder said. ``Clorox is focused on growth and the right kind of growth. With the U.S. and international presence, we will improve our market mix around the Glad brand while giving us the opportunity to strengthen and improve our litter and automotive brands.''
The deal will be treated as a pooling of interests for accounting purposes and is structured to be nontaxable to shareholders. Clorox expects to obtain annual savings of about $90 million from cost reductions in the first year.
``This acquisition is a rare opportunity that strikes a great balance between strengthening our existing portfolio in litter and auto-care products while also providing an exciting new platform for the future in the attractive, growing bags and wraps category,'' G. Craig Sullivan, Clorox chairman and chief executive officer, said in a news release.
Clorox expects the transaction to be accretive to earnings in fiscal 1999, before $110 million of one-time transition costs, as well as the impact of certain asset write-downs. The deal, subject to First Brands shareholder and regulatory approval, could be complete by the end of the first quarter of 1999.
First Brands operates 14 plastic wrap and bag plants — seven in the United States and seven overseas.
Teams will be set up to integrate First Brands' operations into the Clorox organization, Roeder said. It is too early to estimate the impact on employees, he added.