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Newell buys Gillette unit
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August 22, 2000: 5:42 p.m. ET
Newell Rubbermaid agrees to buy Gillette's stationery unit
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NEW YORK (CNNfn) - Newell Rubbermaid Inc. agreed Tuesday to acquire Gillette Co.'s stationery products business, which makes Paper Mate pens and Liquid Paper, for an undisclosed amount.
A Gillette spokeswoman said the deal is expected to close by the end of the year and is still subject to regulatory approval.
The transaction culminates exclusive negotiations between the two companies that have been occurring since June 1, when Gillette announced it was considering selling the lagging stationery business. The company is pruning product categories that have failed to realize potential.
 "The acquisition of Gillette's Stationery Products business further strengthens our writing instrument offering and optimizes our global distribution channels," said John McDonough, Newell Rubbermaid's vice chairman and CEO.
Boston-based Gillette (G: Research, Estimates) is best known for its shavers, Duracell alkaline batteries and Braun dental products. The stationery business is Gillette's second largest, behind the company's Braun grooming segment, with 1999 sales of $743 million, but it only posted an annual profit of $18 million. In 1999, the company had $9 billion in sales.
Freeport, Ill.-based Newell Rubbermaid's (NWL: Research, Estimates) products include Calphalon cookware and Rubbermaid home products. Newell will combine the unit with its Sanford unit, which makes pens, erasers and highlighters, and will result in an undisclosed cost savings, the company said.
Analysts speculate on deal
Analyst Andrew Shore of Deutsche Banc Alex. Brown speculates that Gillette declined to disclose terms of the deal probably because it didn't get a good price for the unit.
"It wasn't a great piece of property to Gillette," he said. "It's worth more to someone else than Gillette. It's not a big enough piece of Gillette that they need to worry about it."
 Shore guesses that Gillette sold the stationery unit for about $400 million.
Analysts however believe the deal is a good move for Newell Rubbermaid. The acquisition boosts Sanford's sales to nearly $2 billion from $1.2 billion, said Peter Schaeffer of Donaldson, Lufkin & Jenrette.
"If Newell turns around the property and if [the deal] is at a good price, then this makes a lot of sense," Schaeffer said. "It's a strong combination of brands."
Gillette effectively orphaned the unit for more profitable businesses, analysts said. The company's core categories include grooming, portable power and oral care that drive 90 percent of the company's operating profits and 80 percent of its sales, a spokeswoman said. Revenue for the stationery unit has also declined for the past several years, dropping to $743 million in 1999 from $900 million in 1997.
"Gillette has taken its eye off the ball a bit," said analyst John Hughes, of Dain Rauscher-PCG.
The deal is probably a combination of cash and debt with Gillette selling for at least one-time revenues, he said.
"We think it will add to [Newell's] earnings for fiscal 2001," Hughes said.
On Tuesday, Newell Rubbermaid gained 1/2 to close at 26, while Gillette rose 7/8 to 30-11/16. 
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