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Energizer's Bid for Playtex May Signal More Deals

Energizer's$1.16 billion bid for small consumer products company Playtex Productsmay be the starting point for more deals in what has been a quiet sector lately.

Late on Thursday, Energizer offered $18.30 per share for Playtex .

When Procter & Gamble acquired Gillette in 2005 several industry watchers suggested that more consolidation could follow. While companies have done smaller deals -- such as Playtex buying Hawaiian Tropic in April -- major merger mania never came to fruition. P&G is still far and away the largest player in the U.S. household products space.

Now, some analysts suggest that other small players such as Alberto-Culver and Church & Dwight may be seen as targets.

"Are there more deals on the horizon? Scale matters and we think investors may focus on other smaller companies as take-out candidates," AG Edwards analyst Jason Gere said in a research note.

Playtex would give Energizer a stronger portfolio of women's personal products that go head-to-head with P&G. Energizer's lineup includes women's Schick razors while Playtex's core brands include its namesake tampons and infant-care items. P&G sells Gillette razors and Tampax tampons among several other products for women. Energizer's namesake batteries also compete against Duracell, which P&G picked up when it bought Gillette.

Energizer's acquisition of Playtex "could serve as a catalyst for other similar deals, as small companies focus on gaining critical mass," Goldman Sachs analyst Lori Scherwin said in a research note.

She said in the medium term, the deal should "lend support to higher multiples for other small cap" household and personal care companies "where takeout prospects are conceivable," notably Alberto-Culver, Chattem, Church & Dwight, Elizabeth Arden and Prestige Brands Holdings.

CIBC analyst Joseph Altobello said in a research note that he has seen Playtex as a takeout candidate "for some time."

Altobello said he would not rule out a competing bid for Playtex, but put the likelihood of such a bid at "probably less than 50/50." He has a "sector outperformer" rating on Playtex and does not cover Energizer.

SunTrust Robinson Humphrey analyst Bill Chappell said he does not see any other potential bidders that would strategically fit as well as Energizer. He has a "buy" rating on Playtex and a "neutral" rating on Energizer.

Chappell said that while the end result of Playtex being acquired was not surprising, the timing and price were. He had expected Playtex to benefit from the synergy potential of its April purchase of Hawaiian Tropic, use cash flow to reduce debt, "and sell the company above $20" per share.

BULLISH BETS RISE IN OPTIONS

Energizer and Playtex announced the deal a day after Playtex Chairman, President and Chief Executive Neil DeFeo skipped a presentation. DeFeo was supposed to speak at a CIBC conference on Wednesday afternoon and Playtex told CIBC late on Tuesday that he could not attend due to a scheduling conflict.

On Wednesday and Thursday, Playtex options traded heavier than usual, with investors focused on calls allowing them to buy Playtex shares at $15 apiece within the next few weeks.

"This action prompted investors to immediately purchase August $15 call options in anticipation of a corporate announcement," Michael Schwartz, chief options strategist at Oppenheimer & Co Inc., said of Playtex backing out of the conference.

Those option investors reaped a handsome profit. On Wednesday, one August $15 call would have cost an investor an average of $75 a contract compared with $300 a contract early on Friday, a $225 profit, Schwartz said.

Playtex said DeFeo plans to leave once the deal closes.

Energizer expects to complete the acquisition this fall. The deal offers a premium of 17.9 percent to Playtex's closing price of $15.52 on Thursday on the New York Stock Exchange.

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