Fitch Affirms Fortune Brands' Sr Notes 'A' Following Announced ACCO Spin-Off.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed the ratings on Fortune Brands, Inc.'s $1.2 billion of senior unsecured notes at 'A' and $2 billion commercial paper program at 'F1' following the company's announcement that it will spin off ACCO ACCO American College of Chiropractic Orthopedists ACCO Association of County Commissioners of Oklahoma ACCo American Cyanamid Company ACCO Adenoid Cystic Carcinoma Organization ACCO American Clip Company ACCO Assistant Central Control Officer World Corporation office products unit. The Rating Outlook is Stable. In a tax-free exchange tax-free exchange An exchange of assets between taxpayers in which any gain or loss is not recognized in the period during which the exchange takes place. Rather, taxpayers are required to adjust the basis of assets exchanged. , Fortune Brands (FO) intends to spin off its ACCO World Corporation office products unit and, at the same time, ACCO will merge with General Binding Corporation (GBC GBC Game Boy Color GBC Global Business Coalition GBC Green Building Council GBC George Brown College GBC Great Basin College (Nevada) GBC General Binding Corporation GBC Greater Baltimore Committee GBC Goldey-Beacom College ) to form ACCO Brands Corporation. As part of the spin-off, FO will receive a cash dividend of $625 million, and its shareholders will receive one share of ACCO Brands for approximately 4.6 shares they own of FO. The transaction values ACCO at roughly $1.1 billion or a multiple of about 6.6 times EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become . The transaction has been approved by the boards of directors of FO and GBC but is subject to regulatory approvals, other closing conditions, and approval by GBC shareholders. Completion is expected during the summer of 2005. The spin-off is viewed as a neutral event, although strategically, office products is not viewed to be as strong as FO's home and hardware, spirits, and golf operations. These operations have strong brand recognition, solid growth prospects, and high profitability. While ACCO has experienced a significant turnaround over the past three years it remained a minor contributor to sales and earnings in 2004. Likely uses of the dividend proceeds would be for stock repurchase Stock repurchase A firm's repurchase of outstanding shares of its common stock. , debt repayment, and future acquisitions. Assuming a worst case for bondholders, applying all proceeds for stock repurchases, credit measures do not suffer materially and remain within Fitch's expectations. With the spin-off of about $167 million (excludes restructuring charges) and no reduction in debt, total debt/EBITDA would rise to 1.5 times (x) from 1.4x in 2004, and EBITDA/interest would decline to 14x versus 15.6x for 2004. Following the spin-off, the balance sheet is expected to remain strong, liquidity enhanced, and cash flow generation more than ample to meet capital requirements Capital requirements Financing required for the operation of a business, composed of long-term and working capital plus fixed assets. , dividends, and stock repurchases. Fortune Brands continues to benefit from its portfolio of leading premium brands that span several sectors and provide it with a broad distribution base. However, home and repair operations will account for roughly 60% of revenues and operating income after the spin-off, and FO is expected to remain acquisitive. Acquisitions within the home and hardware sector could increase FO's sensitivity to the economy, as well as increase the risk of customer concentration. Fitch expects management to remain prudent with future acquisitions. Also, the company's diversification, not only from a sector prospective but also within its home and hardware segment provide considerable cushion for these risks. |
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