SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
13D
[Rule
13d-101]
INFORMATION
TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a)
AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
(Amendment
No. __ ) ¨
SPECTRUM
BRANDS, INC.
(Name of
Issuer)
Common
Stock, Par Value $0.01
(Title
Class of Securities)
84762L105
(CUSIP
Number)
Ashley
E. Hufft, Esq.
Alston
& Bird LLP
90
Park Avenue
New
York, New York 10016
(212)
210-9400
(Name,
Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
February
11, 2009
(Date of
Event which Requires Filing of this Statement)
If the
filing person has previously filed a statement on Schedule 13G to report the
acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
o.
The
information required on the remainder of this cover page shall not be deemed to
be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934
("Act") or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the
Notes).
Page 1 of
21
|
CUSIP
No. 84762L105
|
|
1
|
Name
of Reporting Person: Mittleman Fund Management
LLC
|
||
|
2
|
Check
the Appropriate Box if a Member of a Group
(a)
o
(b)
o
|
||
|
3
|
SEC
Use Only
|
||
|
4
|
Source
of Funds
00
|
||
|
5
|
Check
box if disclosure of legal proceedings is required pursuant to items 2(d)
or 2(e) o
|
||
|
6
|
Citizenship
or Place of Organization: Delaware,
USA
|
||
|
NUMBER
OF
|
7
|
Sole
Voting Power: 0
|
|
|
SHARES
BENEFICIALLY
OWNED
BY
|
8
|
Shared
Voting Power: 1,853,212
|
|
|
EACH
REPORTING
PERSON
|
9
|
Sole
Dispositive Power: 0
|
|
|
WITH
|
10
|
SharedDispositive
Power: 1,853,212
|
|
|
11
|
Aggregate
Amount Beneficially Owned by Each Reporting Person: 1,853,212
|
||
|
12
|
Check
Box if the Aggregate Amount in Row (11) Excludes Certain
Shares o
|
||
|
13
|
Percent
of Class Represented by Amount in Row (11): 3.51%
|
||
|
14
|
Type
of Reporting Person: HC
|
||
Page 2 of
21
|
CUSIP
No. 84762L105
|
|
1
|
Name
of Reporting Person: Mittleman Investment Management
LLC
|
||
|
2
|
Check
the Appropriate Box if a Member of a Group
(a)
o
(b)
o
|
||
|
3
|
SEC
Use Only
|
||
|
4
|
Source
of Funds
00
|
||
|
5
|
Check
box if disclosure of legal proceedings is required pursuant to items 2(d)
or 2(e) o
|
||
|
6
|
Citizenship
or Place of Organization: New York,
USA
|
||
|
NUMBER
OF
|
7
|
Sole
Voting Power: 0
|
|
|
SHARES
BENEFICIALLY
OWNED
BY
|
8
|
Shared
Voting Power: 802,440
|
|
|
EACH
REPORTING
PERSON
|
9
|
Sole
Dispositive Power: 0
|
|
|
WITH
|
10
|
Shared
Dispositive Power: 802,440
|
|
|
11
|
Aggregate
Amount Beneficially Owned by Each Reporting Person: 802,440
|
||
|
12
|
Check
Box if the Aggregate Amount in Row (11) Excludes Certain
Shares o
|
||
|
13
|
Percent
of Class Represented by Amount in Row (11): 1.52%
|
||
|
14
|
Type
of Reporting Person: IA
|
||
Page 3 of
21
|
CUSIP
No. 84762L105
|
|
1
|
Name
of Reporting Person: Mittleman Brothers,
LLC
|
||
|
2
|
Check
the Appropriate Box if a Member of a Group
(a)
o
(b)
o
|
||
|
3
|
SEC
Use Only
|
||
|
4
|
Source
of Funds
00
|
||
|
5
|
Check
box if disclosure of legal proceedings is required pursuant to items 2(d)
or 2(e) o
|
||
|
6
|
Citizenship
or Place of Organization: New York,
USA
|
||
|
NUMBER
OF
|
7
|
Sole
Voting Power: 0
|
|
|
SHARES
BENEFICIALLY
OWNED
BY
|
8
|
Shared
Voting Power: 2,655,652
|
|
|
EACH
REPORTING
PERSON
|
9
|
Sole
Dispositive Power: 0
|
|
|
WITH
|
10
|
Shared
Dispositive Power: 2,655,652
|
|
|
11
|
Aggregate
Amount Beneficially Owned by Each Reporting Person: 2,655,652
|
||
|
12
|
Check
Box if the Aggregate Amount in Row (11) Excludes Certain
Shares o
|
||
|
13
|
Percent
of Class Represented by Amount in Row (11): 5.03%
|
||
|
14
|
Type
of Reporting Person: HC
|
||
Page 4 of
21
Item
1. Security and Issuer.
This Schedule 13D (this “Statement”)
relates to the common stock, par value $0.01 per share (the “Common Stock”), of
Spectrum Brands, Inc. (“Spectrum Brands” or the “Issuer”), a company existing
under the laws of Wisconsin. The principal executive offices of
Spectrum Brands, Inc. are located at Six Concourse Parkway, Suite 3300, Atlanta,
Georgia 30328, telephone (770) 829-6200.
Item
2. Identity and Background.
(a) This
statement is being filed by and on behalf of: (i) Mittleman Fund Management LLC
(“MFM”); (ii) Mittleman Investment Management LLC (“MIM”); (iii) Mittleman
Brothers, LLC (“Mittleman Brothers”). MFM, MIM and Mittleman Brothers
are hereinafter sometimes collectively referred to as “Reporting
Persons.”
(b) The
business addresses of all of the Reporting Persons are as follows: (i) 575
Madison Avenue, 10th Floor,
New York, New York 10022 and (ii) 227 Main Street, Huntington, New York
11743.
(c) The
present principal businesses of each of the Reporting Persons are as
follows:
(i) MFM is
the General Partner of Mittleman Master Fund, L.P., a private investment
partnership organized in the State of Delaware. MFM is a limited
liability company organized in the State of Delaware and is a wholly-owned
subsidiary of Mittleman Brothers.
(ii) MIM is a
registered investment advisory firm. It is a limited liability
company organized in the State of New York and is a wholly-owned subsidiary of
Mittleman Brothers.
(iii) Mittleman
Brothers is a holding company which owns MFM and MIM. It is a limited
liability company organized in the State of New York.
The
attached Exhibit C lists the individuals who may be deemed to control the
Reporting Persons and contains the following information with respect to each
individual: (i) name; (ii) business address; (iii) present principal occupation
or employment and the name, principal business address and address of any
corporation or other organization in which such employment is conducted; and
(iv) citizenship.
(d) During
the past five years, none of the Reporting Persons nor any person named in
Exhibit C to this Schedule 13D, has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors).
(e) During
the past five years, none of the Reporting Persons nor any person named in
Exhibit C to this Schedule 13D, was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction as a result of which such
person was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activity subject to, federal or state
securities laws or finding any violation with respect to such laws.
Page 5 of
21
(f) MFM is a
limited liability company organized in the State of Delaware. Both MIM and
Mittleman Brothers are limited liability companies organized in the State of New
York.
Item
3. Source and Amount of Funds or Other Consideration.
To
acquire the Common Stock, the Reporting Persons used (i) funds managed by MIM in
managed investment advisory accounts and (ii) funds from the Mittleman Master
Fund, L.P., private investment partnership of which MFM is the General
Partner.
The
aggregate purchase price for the 2,655,652 shares of Common Stock beneficially
owned by the Reporting Persons was $2,125,544.07. Of this aggregate
amount, (i) MIM beneficially owns 802,440 shares of Common Stock purchased for a
total cost of $1,755,290.85 and (ii) MFM beneficially owns 1,853,212 shares of
Common Stock purchased for a total cost of $370,253.22. The 1,853,212
shares of Common Stock beneficially owned by MFM are held in the name of
Mittleman Master Fund, L.P., a private investment partnership of which MFM is
the General Partner.
Item
4. Purpose of Transaction
|
|
The
Reporting Persons acquired the Shares for investment
purposes.
|
|
|
On
February 20, 2009, in its capacity as a shareholder of Spectrum Brands,
Mittleman Brothers sent a letter dated February 23, 2009 (the “February
23rd Letter”) to the Issuer’s Board of Directors expressing concerns over
the current management of the Issuer in connection with the Issuer’s First
Proposed Joint Plan of Reorganization (the “Plan”) that the Issuer filed
in the United States Bankruptcy Court for the Western District of Texas
(the “Bankruptcy Court”) on February 3, 2009. Particularly, the
February 23rd Letter outlines Mittleman Brothers’ belief that the Issuer’s
management and board of directors have engaged in, and are continuing to
pursue, courses of action that are in breach of their fiduciary duties to
the Issuer’s shareholders, and that have resulted in, and are continuing
to inflict, material harm to the Issuer’s
shareholders. Mittleman Brothers demanded the immediate
withdrawal of the Plan. Mittleman Brothers also has
demanded that the Issuer fully support the appointment of an
official committee of equity security holders that would negotiate a new,
fair and equitable plan of reorganization that adequately compensates
existing shareholders. The foregoing summary of the February
23rd Letter is qualified in its entirety by reference to the February 23rd
Letter, a copy of which is filed as Exhibit A with this
Statement.
|
|
|
Except
as described in this Item 4 or otherwise described in this Statement, the
Reporting Persons currently have no plans or proposals which relate to or
would result in a transaction, event or action enumerated in paragraphs
(a) through (j) of Item 4 of the form of Schedule 13D promulgated under
the Securities Exchange Act of 1934, as
amended.
|
Each
of the Reporting Persons reserves the right, in light of its or his ongoing
evaluation of the Issuer's financial condition, business, operations and
prospects, the market price of the Common Stock, conditions in the securities
markets generally, general economic and industry conditions, its or his business
objectives and other relevant factors, to change its or his plans and intentions
at any time, as it or he deems appropriate. In particular, and without limiting
the generality of the foregoing, any one or more of the Reporting
Persons (and their respective affiliates) reserves the right, in each case
subject to any applicable limitations imposed on the sale of any of their Common
Stock by the Securities Act of 1933, as amended, or other applicable law, to (i)
purchase additional shares of Common Stock or other securities of the Company,
(ii) sell or transfer shares of Common Stock or other securities beneficially
owned by them from time to time in public or private transactions, and (iii)
cause any of the Reporting Persons to distribute in kind to their respective
stockholders, partners or members, as the case may be, shares of Common Stock or
other securities owned by such Reporting Persons.
Page 6 of
21
Item
5. Interest in Securities of the Issuer
(a) –
(b) Set forth in the table below is the number and percentage of
shares of Common Stock beneficially owned by each of the Reporting Persons as of
February 11, 2009. The share percentage calculations are based on the
number of outstanding shares of Common Stock indicated in the Issuers’s Form
10-Q filed with the Securities and Exchange Commission on February 11,
2009. The Form 10-Q indicated there were 52,803,341 shares of Common
Stock outstanding.
|
NaNameName
|
Number
of Shares Beneficially Owned with Sole Voting and Dispositive
Power
|
Number
of Shares Beneficially Owned with Shared Voting and Dispositive
Power
|
Percentage
Beneficial Ownership |
|||
|
Mittleman
Fund
Management
LLC (“MFM”)
|
-0-
|
1,853,212
|
3.51%
|
|||
|
Mittleman
Investment Management LLC (“MIM”)
|
-0-
|
802,440
|
1.52%
|
|||
|
Mittleman
Brothers, LLC (“Mittleman Brothers”)
|
-0-
|
2,655,652
|
5.03%
|
|
|
In
addition, with respect to those persons listed on Exhibit C who may be
deemed to have control over the Reporting Persons: (i)
Christopher P. Mittleman holds 1,000 shares of Common Stock and Philip C.
Mittleman holds 200,000 shares of Common Stock in accounts at MIM (such
shares are included in the aggregate amount of Common Stock beneficially
owned by MIM as set forth in the table above) and (ii) Philip C. Mittleman
beneficially owns 50,000 in his personal capacity and not with an account
of any of the Reporting Persons. Each of Christopher P.
Mittleman, Philip C. Mittleman and David J. Mittleman disclaim beneficial
ownership of any of the 2,655,652 shares of Common Stock covered by this
Statement.
|
(c) In
the ordinary course of their businesses, the Reporting Persons have purchased
and sold shares of the Issuer’s Common Stock through trades in the open
market. Exhibit D attached hereto sets forth transactions in the
Common Stock that were effected within the past 60 days of the filing of this
Statement by MIM and by Mittleman Master Fund, L.P., the private investment
partnership of which MFM is the General Partner. In addition, Philip
C. Mittleman purchased 50,000 shares of Spectrum Brands, Inc. common stock, or
approximately 0.001% of the outstanding shares, on February 13, 2009 for
personal investment purposes.
Page 7 of
21
(d) No
other person is known to the Reporting Persons to have the right to receive or
the power to direct the receipt of dividends from, or proceeds from the sale of,
any shares of Common Stock beneficially owned by the Reporting
Persons.
(e) Not
applicable.
Item
6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
|
|
To
the best knowledge of the Reporting Persons there are no contracts,
arrangements, understandings or relationships among the Reporting Persons
or the persons set forth on Exhibit C, and between such persons and any
other persons, with respect to the securities of the
Issuer.
|
Item
7. Material to Be Filed as Exhibits
|
|
Exhibit
A
|
Letter
sent by Mittleman Brothers, LLC to the Members of the Board of Directors
of Spectrum Brands, Inc.
|
| Exhibit B | Joint Filing Agreement | |
| Exhibit C | Control Person Information | |
|
|
Exhibit
D
|
Transactions
in Spectrum Brands, Inc. Common Stock Effected by the Reporting Persons in
the Past 60 Days
|
Page 8 of
21
SIGNATURE
After reasonable inquiry and to the
best of my knowledge and belief, I certify that the information set forth in
this statement is true, complete and correct.
Date:
February 23, 2009
| MITTLEMAN FUND MANAGEMENT LLC | |||
|
|
By:
|
/s/ Christopher P. Mittleman | |
| Name: | Christopher P. Mittleman | ||
| Title: | Fund Manager | ||
| MITTLEMAN INVESTMENT MANAGEMENT LLC | |||
| By: | /s/ Christopher P. Mittleman | ||
| Name: | Christopher P. Mittleman | ||
| Title: | Managing Partner | ||
| MITTLEMAN BROTHERS, LLC | |||
| By: | /s/ Christopher P. Mittleman | ||
| Name: | Christopher P. Mittleman | ||
| Title: | Managing Partner | ||
Page 9 of
21
Exhibit
A
Letter
Sent by Mittleman Brothers, LLC to the Members of the
Board
of Directors of Spectrum Brands, Inc.
February
23, 2009
VIA
FED-EX AND FACSIMILE
TO:
THE MEMBERS OF THE BOARD OF DIRECTORS OF SPECTRUM BRANDS INC.
c/o
Kent J. Hussey, Chief Executive Officer
Spectrum
Brands Inc.
Six
Concourse Parkway, Ste. 3300
Atlanta,
GA 30328
Re:
Spectrum Jungle Brands Corp., et al., --Case No. 09-50455
Gentlemen:
As
Managing Partner of Mittleman Brothers LLC, which controls investment entities
that hold 5.02% of Spectrum Brands Inc.’s (“Spectrum” or “the Company”)issued
and outstanding common stock, I am writing to you to demand that you withdraw
the grossly inequitable First Proposed Joint Plan of Reorganization (“the Plan”)
that Spectrum submitted to the bankruptcy court on February 3, 2009 and to
express my outrage at what I perceive to be your obscene dereliction of
fiduciary duty to the long suffering shareholders of Spectrum as evidenced by
your endorsement of this blatantly unfair Plan. I also demand that
Spectrum fully support the immediate appointment of an official committee of
equity security holders (the “Equity Committee”) and that Spectrum negotiate a
new, fair and equitable plan of reorganization, with input from and fair
compensation for the existing shareholders.
It
is unconscionable that you would put forth this Plan which seeks to preemptively
disenfranchise existing shareholders, at the very moment in time when Spectrum’s
value-priced products are gaining share and the Company’s EBITDA and free cash
flow (“FCF”) are steadily improving and are predicted (in Spectrum’s pro forma
financial projections, exhibit 99.2 to 8-K filed 02/03/09) to continue to do
so. Also, that the Plan provides for management’s equity position to
be potentially preserved if not enhanced through this process points to a
serious potential conflict of interest.
Page 10
of 21
Your
Plan proposes that existing senior subordinated noteholders (“the Noteholders”)
will exchange $1.09 bil. face value in notes, and receive in return $218 mil. in
new notes, and 100% of Spectrum’s equity. You project in your Feb. 3,
2009 8-K filing that the Company (after the re-org) will generate $125 mil. in
free cash flow for fiscal year ending 09/30/10. At a low multiple of
only 10x free cash flow, there would be $1.25 bil. of equity value to cover the
$872 mil. in face value that the Noteholders would exchange. Adding
the $218 mil. in new bonds that the Noteholders would also receive to the
conservatively appraised equity value of $1.25 bil., means that Noteholders
would be receiving $1.468 bil. under this Plan, or $378 mil. more than the $1.09
bil. face value of the bonds they now own. That $378 mil. of excess
compensation to Spectrum’s Noteholders under your Plan rightly belongs to the
existing shareholders. In other words, even if 30% of the post-Plan
equity was granted to existing shareholders, the Noteholders would still receive
par value for their bonds with their remaining 70% of the
equity. That $378 mil. in excess equity value equates to $7.16 per
share to existing shareholders, roughly where the stock was valued as recently
as June of 2007, when Spectrum’s near-term prospects were much less
favorable.
This
exercise ignores the likely substantial net present value of the net operating
loss carry-forwards (NOLs) that Spectrum projects should total $1.25 bil. for
U.S. Federal taxes and $2.1 bil. for state taxes as of 09/30/09. That
these NOLs represent significant potential value is underscored by Spectrum’s
recent efforts to preserve them, in a motion made to the Bankruptcy Court and
granted on an interim basis on Feb. 6, 2009, which may allow Spectrum to limit
certain shareholders from achieving a 5% ownership threshold.
As
recently as November 11, 2008 on the conference call to discuss Spectrum’s Q4
2008 and FY 2008 results, Spectrum’s CEO, Kent Hussey, highlighted the company’s
strong operating results in the face of a severely weakened economic
environment. And he lamented the stock price, then at $0.84 per
share, saying, “I strongly believe that the recent declines in our stock price
are not commensurate with the viability, strength and performance of our
businesses.” Mr. Hussey went on to say, “we believe our company is
performing well, gaining share in many product segments as the combination of
exciting new products, our traditional value positioning and a more cautious
consumer are all working to our advantage. All three of our business
units are profitable, generate cash and are meaningful competitors in respected
industries. And while as a corporation we are burdened with a high
level of debt, our operating businesses have been generating a positive cash
flow, enabling us to service our debt and to continue to invest for the
future.”
Page 11
of 21
As
Mr. Hussey noted above, the recession-resistant nature of Spectrum’s businesses
was clearly evident in that quarterly report as all units saw sales growth in an
extraordinarily weak economy. Spectrum’s Rayovac, Remington,
Spectracide, and various pet product brands are indeed proving their value
proposition to consumers as a more cost-conscious pattern of consumption has
become a strong trend which Mr. Hussey noted works to the Company’s
benefit.
Yet
while Mr. Hussey publicly decried the stock price at $0.84 on Nov. 11, 2008 as
being unreasonably low, just three or four weeks later (given the usual time
necessary to prepare a pre-negotiated plan of reorganization), negotiations had
likely already begun for the Plan unveiled Feb. 3, 2009 that valued the shares
at $0.
Coincidentally
and disturbingly, a 13D filed by Harbinger Capital on Nov. 26, 2008 revealed
that Harbinger had sold 4.76 mil. shares of Spectrum’s stock on Nov. 24, 2008 at
$0.10 per share, liquidating nearly their entire equity stake near the same time
that they were likely negotiating with Spectrum to reclaim that equity interest
and more through conversion of their bond holdings into the new bonds and new
common stock that your Plan proposes to create by arbitrarily “extinguishing”
the stock of existing shareholders.
Spectrum’s
CFO said later in that conference call on Nov. 11, 2008: “we continue
to expect positive operating cash flow in 2009 and subsequent to the
discontinuance of the growing products business, positive free cash flow for the
year.” Nothing in Spectrum’s filings of Feb. 3, 2009 would indicate,
absent the $52 mil. in bankruptcy costs now projected for FY 2009, that there
has been any material deterioration in cash flow expectations since
then.
One
would expect that Mr. Hussey’s very abrupt about-face in opinion of the fair
value of Spectrum’s stock, implicit in his approval of the Plan, could only be
due to some significant deterioration in the state of the Company’s overall
business prospects or liquidity position. And yet there is no
evidence of any material adverse events occurring between that conference call
on Nov. 11, 2008 and the bankruptcy filing on Feb. 3, 2009. To the
contrary, new data points and projections revealed for the first time in those
filings and in a subsequent 10-Q filing on Feb. 11 show that while sales dropped
- -7.6% in Q1 2009 (reversing for the effects of currency the decline was only
- -0.1%), the Company nonetheless forecasts growth from 2009 to 2010 and beyond,
while generating ample free cash flow of $125 mil. in
2010. Subtracting the $95 mil. in cash interest expense savings
projected by the Plan from the $125 mil. in post-Plan free cash flow estimate
reveals that even under the current capital structure (before the Plan),
Spectrum would be likely to generate $30 mil. in free cash flow in
2010.
Page 12
of 21
Spectrum
CEO Kent Hussey said in a statement accompanying the bankruptcy
filing: "Despite the global economic slowdown, we see important
bright spots in our outlook. Our Global Batteries and Personal Care
segment delivered its eighth consecutive quarter of adjusted EBITDA growth for
the first quarter of 2009. We continue to gain market share in many
product segments, and our traditional value positioning, together with a more
cautious consumer, is working to our advantage in the current
environment.”
All
of this begs the question as to whether or not Spectrum’s bankruptcy filing was
even necessary at all. Although $100.7 mil. in cash on hand as of
12/28/08 somehow depleted to $37 mil. on Feb. 1, 2009, the Company could likely
have still paid the $25.8 mil. interest payment due to the 7 3/8% notes that was
skipped to create the default facilitating the bankruptcy filing, especially if
Spectrum had not spent $4 mil. in January 2009 on bankruptcy preparation costs,
and if the Company had availed itself of the thirty day grace period for missed
payments offered in the note’s indenture. In addition, management
incentive compensation payments of $30 mil. paid during the quarter ended
12/28/08 could have been deferred, at least partially, until the seasonal
reduction in working capital (that always follows the tight first two fiscal
quarters) released adequate funds. The Company was not in violation
of any credit covenants at the time of the bankruptcy filing, although projected
FY 2009 EBITDA of $293 mil. would indicate a potential slight covenant breach of
the senior secured leverage limit of 5.0x in 10/01/09 that could have most
likely been cured, if it happened, through other means that would not obliterate
shareholder equity.
But
even assuming that the bankruptcy filing was legitimate and unavoidable, the
blitheness with which your Plan unjustly sacrifices the entire economic interest
of long suffering shareholders to the excessive benefit of the various private
equity Noteholders may be the legacy of Spectrum Brands’ long and unfortunate
history of being controlled by private equity funds. Or it might be an ingrained
cultural lack of concern for shareholder value promoted by a board of directors
and CEO who have never purchased a single share of Spectrum stock in the open
market during the past three years, although CEO Kent Hussey sold 69,350 shares
between 02/09/05 and 05/04/05 at prices ranging from $38.88 to $40.42, a rare
exhibit of good timing by Spectrum management. Had only the Company itself taken
after his example and sold some shares to deleverage the balance sheet back
then, and if only Spectrum’s putative zinc hedging program had been fully
deployed with such prescience, instead of only after the price of zinc had
already tripled, so much of Spectrum’s troubles today might have been
avoided.
Page 13
of 21
I’m
not arguing against the long term need to delever Spectrum’s balance sheet, but
sacrificing all shareholder equity in the name of expediency is not the way to
do it.
The
Plan seeks to justify the cancellation of existing shareholder’s equity by
providing an estimate of the reorganized firm’s value from a respected
investment bank. The estimate of firm value provided by this bank in
the Plan gives a mid-point value of $2.2 bil. That would equate to a Total
Enterprise Value to EBITDA multiple of 6.6x (on $332 mil. est. for 2010) and a
market cap. to free cash flow multiple of 5.0x (on $125 mil. est. for
2010). These rock-bottom multiples might be appropriate for a
cyclical steel company during normal times, but these multiples ridiculously
undervalue a nearly recession-proof collection of consumer staple businesses and
are vastly below the average of comparables as shown here:
These
are all of the publicly traded companies which I believe could be considered
comparables for valuation purposes for Spectrum. At today’s severely
depressed prices, a simple average of the twelve names on this list yields an
8.1x EBITDA multiple and a 12.1x FCF multiple, on FY 2010
estimates.
Comparables
(closing prices as of 02/09/09, EBITDA and FCF (Free Cash Flow) are consensus
estimates for FY 2010, based on information provided by Bloomberg
LP):
|
Procter
& Gamble (PG $52.94)
|
Colgate-Palmolive
(CL $64.15)
|
|
8.7x
EBITDA, 10.8x FCF
|
8.8x
EBITDA, 13.9x FCF
|
|
Energizer
(ENR $52.62)
|
Central
Garden & Pet (CENT $6.51)
|
|
7.1x
EBITDA, 11.2x FCF
|
7.3x
EBITDA, 7.8x FCF
|
|
Scotts
Miracle-Gro (SMG $34.23)
|
Helen
of Troy (HELE $11.38)
|
|
8.2x
EBITDA, 10.0x FCF
|
5.5x
EBITDA, 5.0x FCF
|
|
Alberto
Culver (ACV $25.46)
|
Church
& Dwight (CHD $52.57)
|
|
8.7x
EBITDA, 19.5x FCF
|
8.4x
EBITDA, 12.5x FCF
|
|
Reckitt
Benckiser Plc.(RB/LN GBp 2705)
|
Unilever
(UN $21.90)
|
|
10.8x
EBITDA, 15.0x FCF
|
8.4x
EBITDA, 15.5x FCF
|
|
Clorox
Company (CLX $53.82)
|
Henkel
AG & Co. (HEN/GR EUR 17.98)
|
|
8.3x
EBITDA, 14.6x FCF
|
6.8x
EBITDA, 8.7x
FCF
|
Avg.
EBITDA multiple: 8.1x, Avg. FCF multiple: 12.1x
Applying
the depressed average multiple of 8.1x EBITDA to the $332 mil. in EBITDA for FY
2010 estimated by your projections would yield a firm value of $2.69 bil., which
after subtracting $1.58 bil. in net debt (post-reorg as of 09/30/10), yields
$1.11 bil. in equity value, of which $872 mil. covers the face value and accrued
interest exchanged by the Noteholders, leaving $238 mil. in excess equity value
available for existing shareholders, or $4.51 per share (versus the $0 value
your Plan offers existing shareholders).
Page 14
of 21
Applying
the depressed average multiple of 12.1x FCF to the $125 mil. in FCF for FY 2010
estimated by your projections equals $1.51 bil. in equity value, of which $872
mil. covers the face value and accrued interest of notes exchanged by the
Noteholders, leaving $638 mil. in excess equity value for existing shareholders,
or $12.08 per share (versus the $0 value your Plan offers existing
shareholders).
Using
either of the valuation methodologies above, a Total Enterprise Value to EBITDA
multiple, or a equity market capitalization to free cash flow (FCF) multiple,
and even when using the extremely depressed multiples at which the comparables
trade today, there is clearly substantial equity value for Spectrum’s existing
shareholders, somewhere between $4.51 and $12.08 per existing share, even after
the Noteholders receive new bonds and equity matching the full face value of
their notes and accrued interest.
Management
and board members have a legal obligation to preserve shareholder value first
and foremost, to exhaust every possible option to maintain and maximize it; not
to seek out an opportune moment in time to eradicate it.
For
Spectrum to file for bankruptcy protection at all, without having violated any
credit covenants (prior to the likely unnecessary act of skipping an interest
payment), and without any imminent threat of creditor remedies being imposed, is
if nothing else at least questionable judgment. Especially when that
filing occurs in the midst of management’s repeated proclamations of positive
momentum in almost all of the Company’s business segments, with remarkably
resilient current results on display alongside bullish projections for the
future.
But
even if the bankruptcy filing itself was legitimate and unavoidable, by filing
for bankruptcy with this pre-negotiated Plan and in this surreptitious manner,
in the depths of this global financial crisis, and under the fog of abhorrently
low valuations not seen since the Great Depression, Spectrum’s board, management
and private equity Noteholder accomplices seek to improperly deprive existing
shareholders of their ongoing equity participation in the visibly robust
collection of businesses that comprise Spectrum Brands. It is an
egregious abrogation of your fiduciary duty and loyalty to shareholders, and it
is a transgression that we as shareholders will not tolerate, or
allow.
Page 15
of 21
If
Spectrum is unwilling to accommodate our demands to withdraw the Plan, and fully
support the immediate appointment of the Equity Committee with which to
negotiate a fair and equitable plan which adequately compensates existing
shareholders, on a voluntary basis, we are prepared to request that the U.S.
Trustee appoint an Equity Committee and, in the event the U.S. Trustee denies
the request, file a motion in the bankruptcy court compelling the
appointment.
Thank
you for your attention to these important matters. I would welcome the
opportunity to speak with management and/or the board at your convenience to
discuss these issues.
Sincerely,
Christopher
P. Mittleman
Managing
Partner
Mittleman
Brothers LLC
575
Madison Ave., 10th
fl.
New
York, NY 10022
212-605-0559
Page 16
of 21
Exhibit
B
Joint
Filing Agreement
This will confirm the agreement among
the undersigned that the Schedule 13D filed on or about this date and any
amendments thereto with respect to beneficial ownership by the undersigned of
shares of common stock, $0.01 par value per share, of Spectrum Brands, Inc. is
being filed on behalf of each of the undersigned in accordance with Rule
13d-1(k)(1) under the Securities and Exchange Act of 1934, as
amended. This agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one in the same instrument.
Dated:
February 23, 2009
| MITTLEMAN FUND MANAGEMENT LLC | |||
|
|
By:
|
/s/ Christopher P. Mittleman | |
| Name: | Christopher P. Mittleman | ||
| Title: | Fund Manager | ||
| MITTLEMAN INVESTMENT MANAGEMENT LLC | |||
| By: | /s/ Christopher P. Mittleman | ||
| Name: | Christopher P. Mittleman | ||
| Title: | Managing Partner | ||
| MITTLEMAN BROTHERS, LLC | |||
| By: | /s/ Christopher P. Mittleman | ||
| Name: | Christopher P. Mittleman | ||
| Title: | Managing Partner | ||
Page 17
of 21
Exhibit
C
Control
Person Information
|
Name
|
Business
Address
|
Present
Principal Occupation
|
Employer
Information
|
Citizenship
|
|
Christopher
P. Mittleman
|
Mittleman
Brothers, LLC
575
Madison Avenue
10th
Floor
New
York, New York 10022
and
Mittleman
Brothers, LLC
227
Main Street
Huntington,
New York
11743
|
Managing
Partner and co-owner of Mittleman Brothers, LLC; Fund Manager of Mittleman
Fund Management LLC
|
Mittleman
Brothers, LLC
575
Madison Avenue
10th
Floor
New
York, New York 10022
and
Mittleman
Brothers, LLC
227
Main Street
Huntington,
New York
11743
|
USA
|
|
Philip
C. Mittleman
|
Mittleman
Brothers, LLC
575
Madison Avenue
10th
Floor
New
York, New York 10022
and
Mittleman
Brothers, LLC
227
Main Street
Huntington,
New York
11743
|
Managing
Partner and co-owner of Mittleman Brothers, LLC
|
Mittleman
Brothers, LLC
575
Madison Avenue
10th
Floor
New
York, New York 10022
and
Mittleman
Brothers, LLC
227
Main Street
Huntington,
New York
11743
|
USA
|
|
David
J. Mittleman
|
Mittleman
Brothers, LLC
575
Madison Avenue
10th
Floor
New
York, New York 10022
and
Mittleman
Brothers, LLC
227
Main Street
Huntington,
New York
11743
|
Managing
Partner and co-owner of Mittleman Brothers, LLC
|
Mittleman
Brothers, LLC
575
Madison Avenue
10th
Floor
New
York, New York 10022
and
Mittleman
Brothers, LLC
227
Main Street
Huntington,
New York
11743
|
USA
|
Page 18
of 21
Exhibit
D
Transactions
in Spectrum Brands, Inc. Common Stock Effected by the
Reporting
Persons in the Past 60 Days
FOR
MITTLEMAN INVESTMENT MANAGEMENT LLC:
|
Trade
Date
|
Symbol
|
Buy/Sell
|
Number
Of
Shares
|
Execution
Price
|
|
12/16/2008
|
SPC
|
SELL
|
-500.0000
|
.1026
|
|
12/16/2008
|
SPC
|
SELL
|
-2,000.0000
|
.1072
|
|
12/16/2008
|
SPC
|
SELL
|
2,000.0000
|
.1072
|
|
12/16/2008
|
SPC
|
SELL
|
-300.0000
|
.1032
|
|
12/16/2008
|
SPC
|
SELL
|
-1,000.0000
|
.1030
|
|
12/16/2008
|
SPC
|
SELL
|
-22,200.0000
|
.1015
|
|
12/16/2008
|
SPC
|
SELL
|
-2,000.0000
|
.1072
|
|
12/16/2008
|
SPC
|
SELL
|
22,200.0000
|
.1015
|
|
12/16/2008
|
SPC
|
SELL
|
-22,200.0000
|
.1015
|
|
12/19/2008
|
SPC
|
SELL
|
-1,500.0000
|
.1035
|
|
12/22/2008
|
SPCB
|
SELL
|
-2,000.0000
|
.0850
|
|
12/22/2008
|
SPCB
|
SELL
|
-500.0000
|
.0850
|
|
12/22/2008
|
SPCB
|
SELL
|
-200.0000
|
.0850
|
|
12/22/2008
|
SPCB
|
SELL
|
-425.0000
|
.0900
|
|
12/22/2008
|
SPCB
|
SELL
|
-200.0000
|
.0900
|
|
12/23/2008
|
SPCB
|
SELL
|
-500.0000
|
.0900
|
|
12/23/2008
|
SPCB
|
SELL
|
-650.0000
|
.0900
|
|
12/23/2008
|
SPCB
|
SELL
|
-400.0000
|
.0900
|
|
12/23/2008
|
SPCB
|
SELL
|
-1,000.0000
|
.0970
|
|
12/24/2008
|
SPCB
|
SELL
|
-1,000.0000
|
.0920
|
|
12/24/2008
|
SPCB
|
SELL
|
-250.0000
|
.0920
|
|
12/24/2008
|
SPCB
|
SELL
|
-250.0000
|
.0920
|
|
12/24/2008
|
SPCB
|
SELL
|
-250.0000
|
.0920
|
|
12/26/2008
|
SPCB
|
BUY
|
2,000.0000
|
.1050
|
|
12/26/2008
|
SPCB
|
SELL
|
-1,440.0000
|
.0930
|
|
12/26/2008
|
SPCB
|
SELL
|
-600.0000
|
.0950
|
|
12/26/2008
|
SPCB
|
SELL
|
-2,000.0000
|
.0950
|
|
12/26/2008
|
SPCB
|
SELL
|
-300.0000
|
.0950
|
|
12/26/2008
|
SPCB
|
SELL
|
-1,000.0000
|
.0990
|
|
12/29/2008
|
SPCB
|
SELL
|
-300.0000
|
.1032
|
|
12/29/2008
|
SPCB
|
SELL
|
-1,000.0000
|
.1000
|
|
12/29/2008
|
SPCB
|
SELL
|
-100,700.0000
|
.0975
|
|
12/30/2008
|
SPCB
|
SELL
|
-5,300.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-8,000.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-6,500.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-10,000.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-4,000.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-8,000.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-6,820.0000
|
.0866
|
Page 19
of 21
|
Trade
Date
|
Symbol
|
Buy/Sell
|
Number Of
Shares
|
Execution
Price
|
|
12/30/2008
|
SPCB
|
SELL
|
-25,000.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-3,000.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-10,600.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-8,600.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-5,000.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-6,000.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-9,470.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-19,500.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-13,450.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-8,900.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-10,500.0000
|
.0866
|
|
12/30/2008
|
SPCB
|
SELL
|
-4,300.0000
|
.0850
|
|
12/31/2008
|
SPCB
|
SELL
|
-200.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-400.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-700.0000
|
.0840
|
|
12/31/2008
|
SPCB
|
SELL
|
-1,000.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-1,000.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-22,200.0000
|
.0900
|
|
12/31/2008
|
SPCB
|
SELL
|
-300.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-600.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-1,000.0000
|
.0810
|
|
12/31/2008
|
SPCB
|
SELL
|
-600.0000
|
.0860
|
|
12/31/2008
|
SPCB
|
SELL
|
-600.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-400.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-600.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-500.0000
|
.0850
|
|
12/31/2008
|
SPCB
|
SELL
|
-1,000.0000
|
.0840
|
|
12/31/2008
|
SPCB
|
SELL
|
-500.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-500.0000
|
.0840
|
|
12/31/2008
|
SPCB
|
SELL
|
-500.0000
|
.0850
|
|
12/31/2008
|
SPCB
|
SELL
|
-200.0000
|
.0825
|
|
12/31/2008
|
SPCB
|
SELL
|
-200.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-600.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-1,770.0000
|
.0880
|
|
12/31/2008
|
SPCB
|
SELL
|
-600.0000
|
.0825
|
|
12/31/2008
|
SPCB
|
SELL
|
-165.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
SELL
|
-300.0000
|
.0830
|
|
12/31/2008
|
SPCB
|
BUY
|
22,200.0000
|
.0950
|
|
12/31/2008
|
SPCB
|
SELL
|
-500.0000
|
.0860
|
|
12/31/2008
|
SPCB
|
SELL
|
-2,000.0000
|
.0880
|
|
12/31/2008
|
SPCB
|
SELL
|
-500.0000
|
.0850
|
|
12/31/2008
|
SPCB
|
SELL
|
-872.0000
|
.0825
|
Page 20
of 21
FOR
MITTLEMAN MASTER FUND L.P.:
|
Trade
Date
|
Symbol
|
Buy/Sell
|
Number
Of
Shares
|
Execution
Price
|
|
02/05/2009
|
SPCB
|
BUY
|
389,376
|
0.012752
|
|
02/06/2009
|
SPCB
|
BUY
|
161,000
|
0.016611
|
|
02/09/2009
|
SPCB
|
BUY
|
655,000
|
0.025729
|
|
02/10/2009
|
SPCB
|
BUY
|
250,000
|
0.035776
|
|
02/11/2009
|
SPCB
|
BUY
|
250,000
|
0.038854
|
Page 21
of 21