Spectrum Brands

A Strategic Analysis

TABLE OF CONTENTS

INTRODUCTION 1

WORLD MARKET 1

CORPORATE HISTORY 1

GROWTH STRATEGY 2

SPECTRUM AND UNITED INDUSTRIES 2

GROWTH STRATEGY 2

SPECTRUM BRANDS 3

MANAGEMENT 3

STRATEGY 3

RELATED DIVERSIFICATION 3

UNRELATED DIVERSIFICATION 4

MARKETING 5

MANUFACTURING, RAW MATERIALS, DISTRIBUTION, AND SUPPLIERS 10

CONSOLIDATION EFFORTS 10

RAW MATERIALS 11

DISTRIBUTION AND SUPPLIERS 12

SPECTRUM BRANDS FINANCES 12

SALES 12

INCOME 13

PROFITABILITY RATIOS 13

LIQUIDITY RATIOS 14

LEVERAGE RATIOS 15

ACTIVITY RATIO 16

SHARE PRICE 17

RECOMMENDATIONS 18

REFERENCES 19

INTRODUCTION

Spectrum Brands (SPC) is a global branded consumer products company with seven major product lines including Rayovac consumer batteries, Tetra pet supplies, Remington electric shaving, grooming and personal care products, VARTA portable lighting, Vigoro lawn care, Sta-Green lawn and garden, Repel, Hot Shot, and Spectracide household insect control. After acquiring United Industries from Thomas H. Lee (THL) the Boston based private equity firm in 2005, Rayovac (ROV) changed its name to Spectrum Brands and started trading on the New York Stock Exchange (NYSE) as “SPC”.

World Market

The worldwide market sector in which Spectrum competes is estimated to be US$300 billion1. The worldwide market for batteries alone is estimated at US$50 Billion2. Worldwide dog and cat food sales stood at US$45.12 billion, a 4.9% increase over the previous year3. The market for grooming consumer product is about 16 billion4. Spectrum also competes in the $8 billion 5 consumer lawn and garden market.

Corporate History

Rayovac Corporation is the third leading U.S. manufacturer of alkaline storage batteries and the market leader in other battery categories such as hearing aids, computer backup, heavy duty, lantern, and keyless entry. Rayovac's roots reach back to 1906, when entrepreneurs James B. Ramsay, P.W. Strong, and Alfred Landau joined forces to create the French Battery Company6. They also manufacture flashlights and other miscellaneous items. The company has played a leadership role in the U.S. battery industry since the early 1900s. During early 1990’s Rayovac lagged behind competitors like Duracell and Energizer due to aggressive advertising and marketing campaigns by the competitors. In 1996 Thomas H. Lee Group bought the company for US$200 Million7 and reorganized the management to become again, a dominant market player. THL group took Rayovac (ROV) public in 1997 under the turnaround Chief Executive Officer (CEO) David A Jones and THL kept a 25% stake in the new company8. In the same year under Jones’ leadership Rayovac launched its “Maximum Alkaline” line of batteries. At that time alkaline batteries accounted for $2.5 billion of a $4.6 billion dollar U.S. battery market. Maximum was Jones’ value-based alternative answer to the premium-priced Duracell and Energizer batteries. Rayovac sold them at 10 to 15 percent less while offering the same performance 9.

Growth Strategy

Rayovac implemented a merger and acquisition (M&A) strategy to grow the business internationally. Businesses included in the M&A strategy include the 2002 acquisition of European-based battery maker VARTA’s consumer battery business, the 2004 acquisition of 85% share in Ningbo Baowang, a Chinese battery manufacturing facility to lower production cost, and Microlite S.A., a Brazilian battery manufacturer to extend its operations into South America. In a mixed mode diversification attempt in 2003, Rayovac acquired Remington Products Company, LLC10.

Spectrum