Activist Stake Good News for Hain Shareholders
The presence of Engaged Capital should improve accountability and encourage management to seek stockholder-friendly outcomes.
We view the news that activist Engaged Capital has taken a 10% stake in no-moat Hain (HAIN) positively. The fund nominated seven candidates to Hain’s board, and media reports indicate that the fund plans to push for a sale of all or parts of the business while also suggesting operational improvements. While we do not plan to alter our $41.50 per share fair value estimate, we expect the activist presence to improve accountability and encourage management to seek stockholder-friendly outcomes after a series of missteps that led shares down from the mid-$50s just before Hain’s recent accounting troubles.
For a full sale, suitors could look to Pinnacle’s purchase of Boulder Brands in 2016 as a proxy. Pinnacle paid 16 times EBITDA for a business that was also troubled upon purchase. For Hain (using our $348 million fiscal 2018 adjusted EBITDA target), that multiple corresponds to a takeout price around $47 per share, a low-teens premium to our fair value and about 20% over trading levels that incorporate a high-single-digit rally on June 30. Alternatively, Danone paid roughly 20 times our forward EBITDA estimate for WhiteWave, a firm with stronger brands and execution. That would correspond to around $60 per share for Hain, a 45% premium to our valuation and 55% above current trading.
We think asset sales could lead Hain to divest its personal-care business (including the Jason, Alba Bontanica, and Live Clean brands), which accounted for 6% of fiscal 2016 sales (around $175 million). While the unit gives a foothold in Canada and we believe there are synergies between Hain’s food and personal-care items, the category is a small part of Hain’s mix, and resources could instead be used to strengthen core food labels. The list of comparable deals is limited, but Clorox paid about 6 times sales (excluding tax benefits) for Burt’s Bees in 2007 and Colgate paid roughly 3 times sales for Tom’s in 2006. This would correspond to a $0.5 billion-$1 billion valuation for Hain’s offerings.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Zain Akbari does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.