Oppenheimer Skeptical About Success Of Possible Jarden/Newell Rubbermaid Deal

• Shares of Jarden Corp JAH are up 10 percent year-to-date, while Newell Rubbermaid Inc. NWL shares have surged 23 percent.
• Oppenheimer’s Rupesh Parikh said that news of a combination of these two companies comes as a surprise.
• While there are some meaningful positives, there could be several post-merger obstacles, Parikh pointed out.

On December 7, the WSJ quoted sources familiar with the matter as saying that Jarden and Newell Rubbermaid were in talks to combine. “Overall, we are very surprised by this announcement,” analyst Rupesh Parikh wrote.

The positives of such a deal would be “meaningful earnings accretion over time through greater scale, revenue synergies, and likely expense opportunities.” Parikh added, however, that there are several obstacles for successful execution following a combination of the companies. These include a wide variety of brands and businesses spanning multiple categories.

Parikh enumerated the following key points:

May not be the best time – This may not be the most ideal time for an acquisition. The US economy is currently much later in the economic cycle. Moreover, Jarden is in the process of integrating two large companies, namely The Waddington Group and Jostens. The analyst added that there are meaningful potential risks to the combination.

Culture differences could be an obstacle – The two companies have differing cultures, with Newell Rubbermaid becoming increasingly centralized over the past few years under CEO Mike Polk's leadership, while Jarden continuing to operate as a decentralized organization, with greater autonomy for individual businesses.

The combined entity could mean a higher discount - “Based on our conversations with investors currently on JAH as a standalone company, they are less willing to give the company a premium multiple due to the large number of brands embedded within the enterprise. This concern could transcend to a combined entity as well,” the Oppenheimer report stated.

Jarden preferred to Newell Rubbermaid - Newell Rubbermaid’s shares have surged in recent weeks. Following this run-up, Jarden’s shares appear preferable. Parikh added, however, that how the combination would be structured it is still unclear, for instance, whether it would be a merger of equals, whether Jarden would buy Newell Rubbermaid or the other way around.