Consumer Products

Church & Dwight Buyout Takes It Closer to Larger Consumer Product Rivals

Church & Dwight Co. Inc. (NYSE: CHD) is trying to rectify its premium valuation with an acquisition. The consumer products company has traded at much higher valuations than its larger rivals like Procter & Gamble Co. (NYSE: PG) and Kimberly-Clark Corp. (NYSE: KMB).  The $7 billion consumer products company is spending some $650 million to acquire privately held Avid Health in an all cash transaction.

Today’s news takes C&D into the nutritional supplements market as a new growth platform via the private company’s gummy vitamins and Vitafusion and L’il Critters. C&D trades at a substantial premium to the consumer products sector, and while this deal is expected to dilute its 2012 earnings by only two-cents per share, it is expected to be accretive to earnings in 2013 ,and that in turn is expected to give it a slightly lower P/E ratio next year. The impact will only take earnings down to $2.39 to $2.41 per share this year, versus a Thomson Reuters consensus of $2.42 per share.

Avid’s sales were $230 million in the last 12-month period, and it is being funded by debt and cash on hand. C&D shares are bouncing on the news with a gain of 4% to $5.20 and its new market cap is listed as roughly $7.6 billion.

Based on yesterday’s close at $53.04, C&D traded at 19.9-times its expected 2013 earnings.  To show just how much premium is there, the 2013 forward P/E ratio is 17 for Procter & Gamble and just over 15 for Kimberly-Clark.

JON C. OGG

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