Life is strange in weird ways. Yesterday I was told by Seeking Alpha that I won their stock picking competition, Top Stock With A Catalyst. That’s was nice. Here’s the full article and here’s the preview. But there was no parade. On the same day the DOJ sued to block Assa Abloy (OTCMKTS:ASAZY) from purchasing Spectrum Brands Holdings Inc (NYSE:SPB)’s Hardware and Home Improvement (HHI) division and SPB’s stock took a beating.
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I’m not sure how it will play out but I’m confident that Spectrum Brands will achieve their goal of becoming a Global Pet and Home & Garden company. It will take more time. Here are my comments on the whole situation:
Quick comments on the recent news on the DOJ trying to block the sale of Spectrum’s HHI to Assa Abloy.
The DOJ claims that the combination gives the new firm a 65% share of the market. DOJ believes that the transaction violates the Clayton Act. If you read the case, it doesn’t sound good for SPB/Assa (link at the bottom). But read enough of these and you realize that a prosecutor is a good story teller. Of course SPB released a statement that it “vigorously oppose the U.S. Department of Justice’s (“DOJ”) baseless attempt”. Assa did the same.
There are elements of truth to both sides.
It’s true that the deal would give Assa Abloy entrenched market share. Management knew this. That’s why SPB insisted that Assa Abloy commit in the purchase agreement to divest assets to try to secure antitrust clearance. SPB/Assa has proposed divesture to satisfy the transaction but the DOJ believes its insufficient. As of now we don’t have the details.
It’s also true that smart-home gadget, locks, etc… threat/trend is real. In this space you have new entrants with Apple, Amazon and Google. These non-traditional entrants are a new form of competition with deep pockets. But you also have to work with them to get your locks to work. A Yale smart lock has to work with Google Nest. These companies want to control your door lock, lights, thermostats, cameras, security, shades, TV etc…It’s easy to see a company like Apple backing a certain lock system that takes over the market because it syncs with your iPhone. I’m not saying that’s the case but I’m merely pointing out historical trends. Once technology enters a market, it can change everything.
Assa Abloy’s $4.3b deal to buy HHI is central to the thesis. Assa would have to pay a $350 million termination fee if the deal doesn’t close because of regulatory obstacles.
As for the investment thesis, I mentioned in the article that if the transaction failed, SPB would likely sell HHI to a different buyer. They had an auction and there was a lot of interest. However I doubt they will get the same price. I also said that you need to be patient with this one. What this does is it pushes out the thesis. SPB has a strategic plan in place to become a Global Pet Care and Home & Garden company. It will get there. But it will take more time.
As for the stock. It’s much cheaper than when the article got published at $67. It was cheap at $67. It’s cheaper at $47.
Links:
Case US v Assa Abloy AB, 22-cv-02791, US District Court for the District of Columbia https://www.justice.gov/opa/press-release/file/1535131/download
Spectrum Brands’ Statement https://seekingalpha.com/pr/18941406-spectrum-brands-statement-on-u-s-department-of-justice-s-opposition-to-sale-of-hardware-and?source=content_type%3Areact%7Csection%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews
Assa Abloy’s statement: https://www.assaabloy.com/group/en/news-media/press-releases/id.DAD43E1B3B103DA3
Article by Brian Langis
