Energizer Deal's Antitrust Approval Shocks Investor M&A Logic

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(Bloomberg) -- The U.S. Federal Trade Commission allowance of Energizer Holdings Inc.’s purchase of Spectrum Brands Holdings Inc.’s battery unit comes amid market expectations of a longer antitrust review. Energizer shares staged a rally of as much as 21 percent Thursday, while Spectrum closed up 15 percent, the most ever, showing the extent to which the market was pricing concerns in the stocks.

There was a “close to 100%” chance the deal would get a FTC second request, Jefferies said in a note Thursday following the announcement. Suntrust analyst William Chappell echoed those sentiments, writing that Energizer itself expected to get a second request and for that process to "drag out" into the summer.

After initially rising on the original deal announcement in January to as high as $62.86, Energizer shares had fallen more than 15 percent through Wednesday’s close ahead of the FTC decision. Spectrum’s decline was more severe, sinking nearly 29 percent over the same period as skepticism related to the deal persisted.

The decision came after the FTC last month blocked J.M. Smucker Co.’s acquisition of Conagra Brands Inc.’s Wesson cooking oil brand, which some saw as a gauge for the Spectrum Brands, Energizer transaction. The latest developments have compounded investor questions on the predictability of regulatory reviews, particularly in the wake of the Trump administration’s blocking of Broadcom Ltd.’s bid for Qualcomm Inc. and an ongoing antitrust trial on AT&T Inc.’s acquisition of Time Warner Inc., a so-called vertical deal.

“This case is a reminder that every merger review is highly fact specific and I would caution anybody against reading too much into any one decision,” Jonathan Grossman, an antitrust partner at Cozen O’Connor, said in an interview with Bloomberg News. In the Spectrum/Energizer scenario, he added, “the FTC may have concluded that major competition was at the wholesale level" as major retailers carry a limited number of brands.

International approvals are still pending, though the European market is "less concentrated," Keybanc analysts wrote last week, highlighting the expectation the deal will close in the second half of calendar 2018.

Shares in Energizer and Spectrum Brands are paring Thursday’s gains as the worst performers in the Russell RSCC Consumer Staples Growth Index amid the greater market sell off Monday, down 7.5 percent and 4.7 percent respectively.

©2018 Bloomberg L.P.

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