KKR Looks to Clean Up With Kitchen Products August 5, 1999
In an apparent attempt to bring all of the nation's kitchen utensil makers under one roof, Corning Consumer Products Co. agreed to acquire cooking staples maker EKCO Group (AMEX: EKO) for $7 per share in cash, or a total of $300 million, throwing in assumed debt. The nifty 56% premium to the company's closing price of $4 1/2 per share yesterday was enough to send EKCO's shares skyward today.
The purchase is the second this week for privately held Corning Consumer Products, which announced plans to buy another kitchenwares company, General Housewares (NYSE: GHW), for $145 million in cash and debt on Monday. Corning Consumer Products is an affiliate of foodstuffs company Borden Inc., which is controlled by its own management group and buyout firm Kohlberg, Kravis & Roberts (KKR). Anytime KKR or one of its affiliates starts sniffing around for acquisitions, smart investors' ears should perk up.
Despite being most famous (or perhaps infamous) for its buyouts of corporations such as RJR Nabisco and Duracell in the 1980s, what is often overlooked is that the tight-lipped KKR is a very savvy business owner, which typically takes a long-term view when making its investments. As a fellow Fool pointed out earlier this year, KKR's eight-and-a-half-year ownership of Duracell resulted in a 39% compound annual return on investment, which is nothing to sneeze at. While kitchen utensils may seem like a pretty boring investment area in this era of technological wizardry and online opportunity, KKR must sense that there is some value to squeeze out of the sector.
The value garlic press that KKR has latched onto seems to be the consolidation of a great number of the major brand names into one company. With EKCO and General Housewares on board, Corning Consumer Products' line-up is now a who's-who of the nation's cupboards, including such well known brand names as Corningware, Corelle, Revere, Pyrex, Visions, EKCO, Via, Baker's Secret, Farberware cookingware, OXO, and Chicago Cutlery.
Kitchen utensils and cooking items don't have the repeat-purchase economics along the lines of Ritz crackers or batteries, but KKR may be angling to create value by offering retailers one-stop shopping for all of their kitchen basics. Maybe the firm intends to extend the excellent Corning brand name to the other drawers and shelves in the kitchen? Maybe KKR just wanted to deploy some of the estimated $1.3 billion in cash generated by the sale of part of its stake in Gillette (NYSE: G) earlier this year? Maybe the firm is betting on a Y2K-induced run on manual can openers by consumers later this year?
Whatever the rationale, KKR evidently believes acquisitions will play a key role in turning its $603 million acquisition of Corning Consumer Products in April 1998 into another winning long-term investment. If that is indeed the strategy, then expect the buyout firm to be on prowl for more kitchen brand names to acquire in the future.
Fool on the Hill, "Selling the Buyout," 4/05/99
Brian Graney (TMF Panic)