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Will Central Garden Accept Harbinger's Acquisition Offer? - Analyst Blog

Posted: 6/24/2014 11:50:00 AM
Referenced Stocks: CENT;PBH;SUMR;HRG

Central Garden & Pet Company ( CENT ) has received an acquisition offer from Harbinger Group Inc . ( HRG ). In an unsolicited letter, the diversified conglomerate has made an offer to acquire all of Central Garden & Pet's outstanding shares for $10 per share in cash or acquire the company's Pet segment for $750 million.

The news was enough to provide momentum to Central Garden & Pet's shares that hit 52 week high of $10.01 as investors welcomed the development, and closed 6% above the Friday's closing price. However, not much impetus was noticed in the shares of Harbinger that managed 1.1% growth on the index.  

The $10 per share offer represents a 27.5% premium to Central Garden & Pet's closing stock price of $7.84 on Jun 6, 2014. Harbinger Group has also indicated that it will negotiate the deal value if Central Garden & Pet's board engages in constructive talks. On the other hand, Central Garden & Pet said it was reviewing the offer in consultation with its legal and financial advisors.

In a publicized letter dated Jun 9, 2014, Harbinger had disclosed ownership of 4.5% of the company's class A stock and 4.4% of its total common stock.

Despite being a leading name in the lawn, garden and pet supplies market, Central Garden & Pet has been facing troubles for some time now. Lower-than-expected earnings and consistently lower revenues from the Pet segment remain major concerns for the company. This has triggered a downward revision in its estimates over the last 60 days. Estimates for fiscal 2014 and 2015 fell 33.3% and 20.6%, to 28 cents and 50 cents, respectively.

Also, stiff competition and seasonality of the Garden segment have added to the woes. To mitigate its troubles, Central Garden & Pet is on an overhauling drive. The company intends to evolve into an integrated, multi-brand company from a portfolio of stand-alone businesses, by restructuring and reorganizing operating units and consolidating facilities.

Currently, Central Garden & Pet has a Zacks Rank #4 (Sell).

Key Picks from the Sector

Some better-ranked retail stocks worth investing include Prestige Brands Holdings, Inc. ( PBH ) and Summer Infant, Inc. ( SUMR ), both sporting a Zacks Rank #1 (Strong Buy).

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