Shares of Jarden
Jarden will purchase Holmes Group for $420 million in cash and 4.1 million shares of common stock. Privately held Holmes has been in business for 23 years and makes and distributes such products as Crock-Pot slow-cookers, Rival roasters, and Bionaire air purifiers. The business appears pretty solid -- Jarden revealed that Holmes' 2004 revenue was $700 million and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $95 million.
Holmes' presence in China was most likely another attractive selling point, since it will offer Jarden a huge opportunity to enhance its sales and distribution in Asia. Holmes has been manufacturing in China for 15 years, and 90% of its wares are made there. The company produces half of those products in its own factory, and the rest of its manufacturing is outsourced.
A few cautionary notes, however. First, the Holmes deal comes roughly nine months after Jarden announced its $745 million purchase of American Household, which means that Jarden is doing a lot of integration in a short time frame. Also, the American Household purchase led to an upsurge in Jarden's long-term debt, which totaled $1.02 billion at the end of March 31, up 117% from 2004's year-end numbers. And the interest rate on debt also rose year-over-year in the first quarter to 6.1%, from 5.6% in 2004. Jarden will finance the Holmes deal in part with $350 million in new debt.
Nevertheless, Jarden has managed its debt well so far. Despite the jump in debt, first-quarter interest expense as a percentage of revenue decreased year over year. As for the Holmes deal, Jarden believes the purchase will be at least 10% accretive to 2005 earnings, which it now puts at $3.23 per share. Further, the company expects to generate cash flow from operations of more than $250 million for the balance of this year. In light of these forecasts, Jarden's latest purchase looks like another winner.
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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.