NEW YORK (The Deal) -- Even though a number of potential suitors would be interested in acquiring Helen of Troy's (HELE) housewares and kitchen appliance brand, Oxo International, the diversified consumer products company is more likely to sell itself as a whole rather than in pieces, according to a source.
"Nine out of 10 buyers want this company for Oxo," said a source familiar with the matter.
"But as for the rest of the company, how many thermometers and fan companies do you need?" the source said, referring to its Braun division, which sells thermometers, and its Honeywell-branded fans, humidifiers and air cleaners. "Maybe that's why a strategic buyer is less likely than a financial buyer."
In fact, Helen of Troy, based in El Paso, Texas, sells a varied portfolio of products even beyond thermometers and fans. It also sells hair dryers, tea kettles and cleaning tools, among other things. Aside from Oxo, some of its better-known brands span three prominent segments - personal care, housewares and home environment - include Honeywell, PUR water filtration, Dr. Scholl's, Brut, Vicks, Revlon and Sure.
One downside of Helen of Troy's history of asset purchases and brand roll-ups is that "it would result in significant tax leakage or significant tax bill should management decide to sell the company in a piecemeal fashion," the source noted.
On Thursday, Helen of Troy shares finished at $59.08. While shares have advanced more than 62% over the past 12 months, the source believes the company can fetch $65 or so per share in a sale, even though there isn't an obvious buyer for the entire enterprise. The source bases that value on the 10 or so times Ebitda that Helen of Troy's consumer products peer, Jarden (JAH), is currently trading for. Given Helen of Troy's approximately 32.06 million outstanding shares, a $65 per share offer would value a transaction at about $2.1 billion - which is nine times the company's projected Ebitda of $233.5 million that's annualized off the $58.4 million it garnered in its most recent quarter.
Meanwhile, the company is facing pressure from activist shareholder Sachem Head Capital Management, which on Tuesday sent a letter to Helen of Troy's board, noting its poor governance, the excessive compensation of the its former CEO, Gerald Rubin, and the cash hoard on its balance sheet.
The New York-based hedge fund, established by William A. Ackman protege Scott Ferguson in July, wants Helen of Troy to consider selling itself.
According to Sachem, which owns a 3.7% stake in the company as of Wedneday, Helen of Troy has already dismissed at least one legitmate offer from a potential strategic buyer that it describes as being a "well-respected company with financial resources and proven acquisition track record."
Other shareholders agree that Helen of Troy needs to do more to unlock shareholder value.
"The board needs to hire investment bankers to evaluate strategic alternatives if they haven't done this already," said Graham Yoshio Tanaka, portfolio manager and president of Tanaka Capital Management, in a phone interview.
The New York-based mutual fund has been investing in Helen of Troy for at least five years.
"It is underleveraged, so there's even more opportunity to do something financially, to do an acquisition, or be acquired," Tanaka added. "There's not a lot of debt. This company is buyable."
The company had a cash balance of approximately $28.8 million as of Nov. 30, alongside $215.4 million in debt.
Despite shareholder concerns, Helen of Troy doesn't appear to be in the midst of an auction, the source noted, pointing to the abrupt resignation of Rubin just a couple of weeks ago. Julien Mininberg, who heads the company's healthcare and home environment segment, will replace Rubing, effective March 1.
"Honestly, I expected a sale a lot sooner under the auspices of Gerald," the source said. "The former CEO, on a fairly regular basis, was approached, but he never indicated who the buyer was. It's hard to envision the company running in a more efficient manner."
Helen of Troy issued a statement on Wednesday acknowledging that various discussions have been held with Sachem, but also indicating that a sale isn't likely in the near term.
"The Board of Directors remains confident in its current strategy to deliver significant shareholder value, and has taken a series of actions designed to position the Company for greater growth and profitability, including the implementation of our CEO succession plan and a significant reduction in executive compensation," Helen of Troy said in the statement. "The Board will continue to evaluate additional opportunities to enhance long-term value for shareholders, including the potential return of capital, when compared to its current strategy."
Helen of Troy officials didn't return calls Thursday, while Sachem declined to comment beyond its letter. Calls to Clorox and Kimberly-Clark weren't returned.