Why Newell Rubbermaid Is A Buy After Jarden Merger

• Newell Rubbermaid Inc. NWL Shares are down 5 percent since December 8, while shares of Jarden Corp JAH have gained 13 percent over the same period.
• Piper Jaffray’s Stephanie S. Wissink upgraded the rating on the company from Neutral to Overweight, while raising the price target from $43 to $51.
• The proposed merger with Jarden has both economic and strategic value, Wissink stated.

Newell Rubbermaid’s proposed merger deal with Jarden is positive in terms of both economic and strategic value, analyst Stephanie Wissink stated. She believes that Jarden’s brand portfolio will benefit significantly from Newell Rubbermaid’s disciplined development and commercialization process.

Wissink mentioned that although the deal is expected to add complexity to Newell Rubbermaid’s tidy and predictable business, the company’s operating structure will mitigate the disruptive risk caused by the merger.

A conservative estimate of the cost synergies from the merger stands at $500 million, representing 3.5 percent of the cost structure. Wissink pointing out that comparable mergers have yielded savings in excess of 5 percent. These estimates do not assume any revenue, innovation or pipeline related synergies.

“[W]e see an incremental $0.30 in annual EPS accretion potential. On a proforma basis, assuming 4% topline growth, $500M in cost savings, 6.5% borrowing rate, and a 30% tax rate, we see $3.00 in FY17E EPS and $3.30 in FY18E,” the Piper Jaffray report noted.

Wissink believes that the $60 per share price paid for Jarden is reasonable and represents a 24 percent premium to the trailing 30-day weighted average price.