I'll give Honeywell
Honeywell announced this morning that it will pay $1.4 billion, including assumed debt, to acquire French personal-protection manufacturer Sperian. At 117 euros per share, the all-cash tender offers Sperian shareholders the chance to cash out for a 67% premium over what private-equity shop Cinven offered -- and nearly double what the shares fetched before Cinven made its play.
Needless to say, Sperian's board is totally on board with Honeywell and promises to recommend that shareholders vote "oui" just as soon as it has a fairness opinion in hand. As for Honeywell's shareholders, here's why they should be hopping mad.
According to Honeywell, this deal will create a $1.8 billion "global personal protection equipment" (PPE) behemoth, competing with rivals such as 3M
Last year, Sperian did about $946 million in revenues and earned roughly $84 million -- an 8.8% operating profit margin. Honeywell thinks it can do better than that, and it's probably right. The company's own PPE business currently resides within Honeywell's "Automation and Control Solutions" division, Honeywell's second-biggest business by revenues. Sadly, ACS is also Honeywell's second-least profitable division, by margin. With $1.6 billion in operating profit on $12.6 billion in revenues last year, ACS earned Honeywell only a 12.6% margin -- better than Sperian had been doing on its own, but worse than Honeywell's Specialty Materials and Aerospace segments.
Now, this might be all right if Honeywell were buying Sperian on the cheap. It's not. To the contrary, Honeywell aims to pay nearly 1.5 times sales to acquire Sperian -- when all of Honeywell currently commands a mere 1.1 times sales multiple. To my Foolish eye, Honeywell would have been better advised to shop closer to home and pick up a smaller, cheaper PPE shop such as Lakeland Industries or Mine Safety
Moral of the story: You might think the euro's dive makes Europe look cheap. And perhaps it is becoming a cheap place to visit. But Honeywell shareholders shouldn't want to live there.
Fool contributor Rich Smith owns no shares of any company named above. 3M is a Motley Fool Inside Value pick. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.