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Will class ring maker Jostens graduate to new owner?

Even as Newell Rubbermaid moves to unload its existing Levolor and Kirsch window décor business, other brands could be jettisoned after the consumer goods giant closes its planned acquisition of Jarden, according to analysts.

Another brand that could be shed is Jostens, known for class rings, yearbooks, varsity jackets and other keepsakes for graduates. Jostens was purchased less than a year ago by Jarden, but analysts say lackluster sales growth and questions about the relevance of such things as yearbook pages in the digital age may make it an easy time to say goodbye to this business.

"It's possible that the divestitures may not be one by one in terms of brand by brand but they might be in little bundles," said Piper Jaffray' analyst Stephanie Wissink. She said this strategy could perhaps yield more interest from private equity or another strategic buyer.

Jostens ring
Source: Jostens

Newell Rubbermaid's pending Jarden acquisition, which was announced in December 2015 and recently valued at $19.5 billion, combines Newell's portfolio of brands such as Sharpie, Papermate, Lenox, Rubbermaid, Graco. Elmer's and Calphalon with Jarden's more than 120 brands, including Jostens, Coleman, Yankee Candle, Sunbeam, Holmes, Oster, Mr. Coffee and Rawlins brands.

Earlier this month, Newell Rubbermaid announced the sale of Levolor and Kirsch window coverings businesses to Hunter Douglas for about $270 million, with proceeds slated to go to pay down debt. "We believe the décor business will benefit from being part of Hunter Douglas, an owner more strategically committed to building and investing in the window coverings market," Newell Rubbermaid President and CEO Michael Polk said in announcing the window coverings business sale.

"The focus on divestitures is particularly sharp given NWL's higher degree of leverage post the deal," Citi analyst Wendy Nicholson told clients in a note last week. "We see at least one potential divestiture: Jostens," Nicholson wrote, suggesting the business "could be split up and sold in pieces."

Added the Citi analyst: "We see systematic issues for the category given the current lack of relevance for the products to most consumers. We learned that sales-force turnover has been a significant problem in recent years, which has led to less consistent and overall weaker sales patterns."

"The biggest cost savings opportunities are largely behind Jostens," said Nicholson. "As such, we believe that Jostens is a great candidate for divestiture, as the fit into NWL's growth game plan seems imperfect to us."

Jostens designs and makes custom jewelry, apparel, publications and consumer goods that serve the K-12 educational, college and professional sports segments. The bulk of Jostens' revenue is believed to come from K-12 school yearbooks (43 percent) and scholastic products such as class rings (24 percent). The remainder is from caps and gowns and varsity jacket sales, along with keepsake products sold to colleges and championship rings to professional sports.

Over the years, Minneapolis-based Jostens has made championship rings for the NCAA as well as professional football, baseball, basketball leagues and NASCAR.

In 2014, a proposed $500 million merger of Jostens with its closest rival, American Achievement Corp., was abandoned after the Federal Trade Commission raised concerns that the combination "would control an unduly high percentage of the high school and college rings markets, making it a dominant firm with only one smaller meaningful competitor in both markets." AAC, an Austin, Texas-based company, and its Balfour brand sell school rings, yearbooks, athlete letter jackets and other recognition products for the educational and military markets. AAC also is known for making championship rings for professional sports.

"There are no immediate plans to divest any Jarden businesses at this time," Newell Rubbermaid spokesperson Nicole Quinlan said in an email response.

During a conference call in December announcing the Jarden deal, Newell Rubbermaid's Polk stated, "We don't have a preconceived notion as we come into this on what exactly we would choose to bet on or not bet on. We have the time, given the value released in the combination to really do that work in the proper way. Our goal is not to shrink to success; our goal is to grow disproportionately and competitively versus other people in the consumer goods industry."

Polk, the Newell Rubbermaid CEO since 2011, has a reputation as a strong operating executive and is credited with leading the transformation of Newell Rubbermaid from a holding company to an operating company, driving synergies, extracting costs and improving efficiencies throughout the disparate businesses. Polk will continue as CEO of Newell Brands, the merged company which will have $16 billion in annual revenues.

Industry observers say the sale of assets could be used to help pay down debt from the merger. They believe the Jostens sale could raise about $1.5 billion, essentially the price Jarden paid for the business last year when acquiring Visant Holdings, Jostens' parent company at the time, from private equity firms KKR and aPriori Capital Partners.

"The reason why we haven't had a significant conversation around divestitures to date is because the financing of this deal was reliant on the combined EBITDA of the two businesses," said Piper's Wissink. "In an environment where leverage is becoming viewed more so as a risk by investors, it was very important for Newell and the (newly merged company) to essentially borrow at favorable rate."

Earlier this month, Newell Rubbermaid cleared a major financing hurdle when it completed the sale of $8 billion in unsecured notes. The next big step comes April 15, when shareholders of both companies are scheduled to vote on the deal. The transaction is expected to close during the second quarter.

Newell Rubbermaid stock is up 15 percent in the past two months, while Jarden is up nearly 12 percent in the same period. Several big institutional holders have been accumulating shares of both stocks since the fourth quarter, including Vanguard Group. Newell Rubbermaid shareholders will own approximately 55 percent of the company after the transaction is complete.

Management has said they expect to deliver $500 million in cost synergies within four years of the deal closing, although RBC Capital Markets analyst Nik Modi said in a note Tuesday he's modeling the company "achieving $550 million in cost synergies in three years and $750 million in 'total cost savings' by 2020."