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AMERICAN BRANDS HAS $3 BIL. IN BANK CREDIT AND EXPERIENCE IN CHESEBROUGH-POND's

Executive Summary

AMERICAN BRANDS HAS $3 BIL. IN BANK CREDIT AND EXPERIENCE IN CHESEBROUGH-POND's health and beauty aid line of business. "We feel that the consumer packaged products of the two companies would be highly compatible," American Brands Chairman and CEO Edward Whittemore stated Nov. 25 in announcing a $66 per share ($2.8 bil.) offer for Chese-pond's. The firm also already has a $3 bil. line of bank credit lined up, and will not have to go to the currently uncertain bond market to finance the acquisition. Bond financing was the weakness in Revlon's bid for Gillette, which fell through in the aftermath of the Boesky insidr-trading scandal on Wall Street. The Boesky affair involved Revlon's banker Drexel Burnham & Lambert, which was going to finance the deal through a junk bond offering. Through its Jergens subsidiary, American Brands has 16 years of experience in the body lotion/soap business, a key element of the business logic behind the bid for Chese-Pond's. About 2% ($147 mil.) of American Brands' $7.3 bil. annual volume is derived from the soap and lotion category. American Brands would more than double its H&BA business by adding Chese-Pond's, with 1985 H&BA sales in excess of $321 mil. The addition of Chese-Pond's Vaseline Intensive Care Lotion would make American Brands the instant leader in the hand and body lotion market. American Brands would also benefit from the addition of market mainstays Q-Tips and Vaseline Petroleum Jelly. Chese-Pond's would also provide American Brands with entries into the mass-market and department store cosmetics and fragrance brands, through the Cutex, Rave and Prince Matchabelli products. The Prince Matchabelli Division had 1985 sales of $130.2 mil. Other fits in product lines occur in the food and sporting goods categories. Chese-Pond's owns Ragu spaghetti sauce and American Brands has the Sunshine cookies and crackers brand, and Chesebrough markets Prince tennis equipment while American Brands sells the Titleist, Pinnacle and Foot Joy golf products. Chese-Pond's has been a difficult takeover target in the past. The firm responded to American Brands' offer with only a terse Nov. 25 statement that it has "retained legal and financial advisors to review the proposal as well as other alternatives designed to maximize shareholder value." Because of its profile of recognizable brands in several categories, Chese-Pond's has options to raise money for a takeover fight. Alternatives include the divestiture of more chemical units or its Prince tennis equipment division (1985 sales of $62 mil.), or the Bass Shoe Division (1985 revenues of $171 mil.). Chese-Pond's may also attempt to lessen its attractiveness through a defensive acquisition. The company resorted to that approach in 1984, when it bought the Polymer Corp. industrial plastics firm as a $95 mil. plastic shield against Carl Icahn. In 1985, Chese-Pond's doubled its size and its debt with the acquisition of the Stauffer agrichemicals business for $1.2 bil. The purchase increased the company's debt ratio to 74%. Chese-Pond's has reduced the debt to below $1 bil. and brought the ratio down to about 48% through a series of divestitures of non-core businesses, the latest of three chemical units. American Brands has no intention of keeping Stauffer, annoucing that "it would be our intent to divest Chesebrough's Chemical Products Division."
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