Stocks seesawed Tuesday, with the Dow Jones Industrial Average (DJINDICES:^DJI) breaking through the 26,000 level with a 200-point gain, dropping to a 100-point loss, and then mostly recovering. The S&P 500 (SNPINDEX:^GSPC) closed down for the day.
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Falling crude oil prices hurt energy stocks; the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT:XOP) closed down 1.8%. Retail stocks fell after big gains last week, with the SPDR S&P Retail ETF (NYSEMKT:XRT) losing 2.1%.
As for individual companies, Energizer Holdings (NYSE:ENR) announced it is buying the battery business of Spectrum Brands (NYSE:SPB), and Merck (NYSE:MRK) reported positive results for its lead immunotherapy drug in a trial with lung cancer patients.
Energizer snaps up rival battery brands
Shares of battery maker Energizer Holdings surged 14.5% after the company announced it was buying Spectrum Brands' battery and portable lighting business for $2 billion in cash, acquiring rival brands Rayovac and Varta. Spectrum Brands stock gained 3.9% on the news.
Spectrum's battery business generated $866 million in revenue in fiscal 2017 and $169 million in EBITDA. Energizer said that the 12 times EBITDA valuation falls to 7.5 when taking into consideration certain tax benefits and $80 to $100 million in expected annual cost savings. The company believes the deal will be slightly accretive to earnings in the first year, excluding transaction and integration costs.
Spectrum owns consumer brands in a variety of product areas, and had announced Jan. 3 that it intended to sell off its battery and appliance businesses in an attempt to improve growth, margins, and shareholder returns. The consumer battery business grew 3% in 2017, which actually made it one of Spectrum's most successful businesses last year, but the company will use the cash to reduce debt, invest in remaining businesses, and buy back shares.
For Energizer, the deal bolsters the company's presence in Europe and Latin America as well as greatly increasing its market share in the U.S. Assuming the deal passes muster with regulatory agencies, perhaps not a given since the result would essentially create a duopoly with Berkshire Hathaway's Duracell unit, the potential pricing power and profit growth for Energizer had investors charged up today.
Merck trial allays concerns over Keytruda in lung cancer
Shares of drug giant Merck jumped 5.8% after the company announced successful results for a phase 3 trial of its blockbuster immunotherapy cancer drug Keytruda in combination with chemotherapy as a first-line treatment for metastatic non-squamous non-small cell lung cancer (NSCLC). The brief press release said that the Keynote-189 trial met its dual primary endpoints of overall survival and progression-free survival and that details of the trial results will be released at an upcoming medical meeting.
The news effectively erased investor concerns about Keytruda that arose last October when Merck suddenly announced it was withdrawing its application for this same combination therapy to European regulators, based on results of an earlier trial, Keynote-021, that had already led to FDA approval in the U.S. Little explanation was given for the move, and despite assurances from Merck that it had confidence in results from Keynote-021, investor worries kept a lid on the stock price until today.
Positive results from the newer trial with a larger patient population suggest that Merck was being conservative and waiting to build a stronger case to European officials. This news likely clears the way for European submission for the Keytruda/chemo combo, extending the company's lead in immunotherapies for the most common form of lung cancer. Keytruda is the only immuno-oncology drug with approved indications for first-line treatment of NSCLC, both in combination with chemotherapy and on its own for certain patients.