Rayovac Branching Out Further

Battery maker Rayovac Corp.’s announcement that it will purchase privately held United Industries Corp., maker of lawn care and pet supply products, for about $546 million in stock and cash was cheered Tuesday by Wall Street as an opportunity by Rayovac to transform itself into a more diversified company. Rayovac shares rose 17% to a record high.

The deal will allow Atlanta-based Rayovac, third behind Gillette Co.’s Duracell and Energizer Holdings Inc.’s Energizer in the U.S. battery market, to broaden the company’s array of household products, which includes Remington shavers, and enable it to get more out of its operational expertise and existing relationships with retailers, analysts say.

Among United Industries’ brands are Vigoro lawn care products, Cutter insect repellent and Eight in One pet supplies.

The deal also would lessen Rayovac’s reliance on battery sales to account for the majority of its revenue, said Peter Barry, an analyst with Bear, Stearns & Co. in New York.

Shares of Rayovac jumped $5.09, or 17%, to $34.65 on the New York Stock Exchange, well above its previous all-time high of $31.34 set in mid-December. The company went public in November 1997.

“I think what the market is telling us is if this transaction is finalized, this is in fact a transforming event for Rayovac,” Barry said.

If the deal closes as expected in February, battery-related sales will account for only about 40% of Rayovac’s revenue, compared with 65% to 70% without United Industries, Barry said.

Also, the combination will benefit Rayovac because United Industries’ lawn-care products usually have strong sales during the first six months of the year and Rayovac’s battery sales are usually strong during the second half of the year, Barry said.

“The combination of United Industries and Rayovac now balances the seasonal characteristics of this company in a decidedly more even fashion,” he said.

Under terms of the deal, Rayovac would issue 13.75 million shares of its common stock and pay $70 million in cash for United Industries shares, which are not publicly traded. At Monday’s closing price, those Rayovac shares were worth $406 million, but the value shot up Tuesday after news of the deal.

As part of the deal, Rayovac would assume $880 million of United Industries debt and a cash tax benefit of $140 million. United Industries is based in Maryland Heights, Mo.

The two companies would have a combined 9,300 employees and revenue of about $2.45 billion, executives said.