Rayovac Corp. was less than forthcoming when it raised $700 million earlier this month, according to investors. They say the battery producer and underwriter Banc of America Securities pulled a fast one on them by saying it was focusing on integrating acquisitions. Several of those present said company officials made no mention Rayovac was seeking other prey that could hamper its creditworthiness. But shortly after the deal was priced, word spread about an article on The Deal.com suggesting Rayovac is considering making another acquisition in the near term. A BofA banker confirmed Rayovac is indeed looking to make another acquisition, according to one investor.
"We never heard it [at the roadshow] from BofA. That's both scummy and unusual," whined an investor who participated in the deal. He added when he confronted a BofA banker about the article, "He said the article was true and gave some b.s. about how they've worked with the company before and it can delever after the acquisition if it happens." The investor declined to name the banker he spoke with.
John Rote, head of high-yield syndicate at BofA, declined comment and Randall Steward, executive v.p. and cfo of Rayovac, and a company spokesman did not return several calls.
The 7 3/8% bonds were only trading around par after the deal was priced, which is unusual because most deals trade a couple points higher after they are priced. To be sure, the 10-year securities had moved up a point to 101 as BW went to press, despite some unhappy investors.
One who participated in the deal said word was spreading the company was a potential suitor for Tetra Werke, a European aquarium company, which would bring Rayovac's leverage ratio from 5.3 to 5.8. "They didn't have anything to announce to the capital markets, not 'we're looking at some more acquisitions which would increase our leverage,'" the investor griped, suggesting Rayovac and BofA knew more than they let on.
A new acquisition would be credit-damaging to Rayovac, which just acquired garden company United Industries for about $500 million. Patrick Jeffrey, credit analyst at Standard & Poor's, said it was expecting Rayovac to digest United Industries before making another acquisition. "We're expecting integration, not for them to do another acquisition," he commented. Kevin Ziets, senior analyst at Moody's Investors Service, declined to predict whether a Tetra acquisition would cause rating action for Rayovac but said if its leverage approached 6, its current rating would be strained.
Another investor who participated in the deal, but was not present at the New York roadshow, said the company "didn't say it wouldn't" make a near-term acquisition in his meeting. He remarked while Rayovac has a great track record with acquisitions "the market will be more than disappointed [if they make another one now]."
