ASSA ABLOY’s battle with federal regulators over the company’s acquisition of Spectrum Holdings’ home and hardware (HHI) business appears to be over.
ASSA ABLOY announced it completed its $4.3 billion acquisition of Spectrum Holdings’ home and hardware (HHI) business (brands Kwikset and Baldwin) on June 20, as well as its divesture of Emtek and Smart Residential (brands August Home and Yale Home) to Fortune Brands, the parent company of Master Lock. The closing comes after Mexico’s competition authority green lighted the deal on June 5.
HHI’s sales for the 2022 fiscal year were $1.6 million with an EBITDA margin of 15.6%. ASSA ABLOY forecasts EBIT synergies are expected to reach around $100 million within a 5-year period.
The Emtek and Home Smart Residential business in the U.S. and Canada divested to Fortune Brands as part of the anti-trust settlement with the U.S. Department of Justice (DOJ) represented sales of about $400 million in 2022. The preliminary divestment result is estimated at $300 million.
“HHI is an excellent addition to ASSA ABLOY, complementing our existing business in terms of product offering and geographic scope, and I am delighted to welcome HHI and all its employees to ASSA ABLOY," said Nico Delvaux, President and CEO of ASSA ABLOY. "I am also pleased that employees and customers of our divested businesses will be in good hands, and I wish them future success.”
“This acquisition opens new opportunities for our residential business in the U.S. and Canada, bringing strong, well-known brands and high-quality, innovative products into our portfolio,” said Lucas Boselli, executive vice president of ASSA ABLOY and head of the Americas Division.
The U.S. Department of Justice sued ASSA ABLOY last September over the proposed deal due to concerns about the potential effects on market competition. The case proceeded to trial in U.S. District Court in Washington D.C., but after a few days of opening arguments and testimony a settlement was reached.
The settlement, which is subject to court approval, directed ASSA ABLOY to divest assets to Fortune Brands Innovations “that are designed to allow Fortune to compete in the market for premium mechanical door hardware and smart locks used in residential and multifamily buildings,” the DOJ said.
The assets include ASSA ABLOY’s Emtek and Schaub premium mechanical door hardware business, its Yale and August residential smart-lock businesses in the U.S. and Canada, and “other assets for multifamily smart-lock applications” in those two countries.
Additional settlement terms included expanding Fortune’s intellectual property and commercialization rights in smart locks, inclusion of additional residential mechanical lock assets, and the appointment of a monitoring trustee.
Additionally, there is a penalty provision for delayed transfer of a manufacturing facility, and the ability for the DOJ “to seek additional relief later if the divestiture fails to maintain the intensity of competition that existed before the merger” for smart locks used in residential and multifamily buildings.
Spectrum Brands CEO David Maura said the company will receive approximately $3.6 billion from the sale after price adjustments, taxes and fees.
Maura said Spectrum plans to use the funds to reduce debt, strengthen operating performance and fund “opportunistic” mergers and acquisitions. “We will also be in a position to return a substantial amount of capital to our stockholders,” he notes.
Maura also noted it would be separating its Home and Personal Care business from its remaining business in the “medium term” to pursue the goal of becoming a “faster growing, higher margin, pure play global pet care and home and garden company. These initiatives are a testament to our commitment to delivering value to our stockholders and underscores our view that our company has significant upside potential.”
Maura said Spectrum plans to use the proceeds of the sale to reduce its debt by $1.6 billion. This would happen through repaying in full outstanding loans under its term loan facility and revolving credit facility, which had outstanding loans in a principal amount of $392 million and $715 million, respectively, and by redeeming in full its 5.75% notes due July 15, 2025, of which approximately $450 million in aggregate principal amount is outstanding.
Following the repayments, the company plans to terminate $500 million of revolving loan commitments under its $1.1 billion revolving credit facility, with the remaining $600 million of revolving loan commitments being available under its credit agreement for subsequent borrowings.
The company’s board of directors has approved a new stock repurchase program authorizing the purchase of up to $1 billion of common stock, replacing the prior stock repurchase program.
Fortune Brands CEO Nicholas Fink said the acquisition of Yale, Emtek, August and Schaub “fit perfectly with our portfolio and will accelerate strategic initiatives across our organization. With this acquisition, we will increase Fortune Brands’ scale in connected products, drive innovation and expand our offering in the luxury home products market.”
For the second half of 2023, Fortune projects the added brands will generate sales of $190 million to $210 million.
As the company “executes identified synergies” it expects to generate net sales of $500 million to $550 million in the third full year following the acquisition.
