A major barrier to a takeover/breakup is that Hain Celestial wouldn’t be a “clean” sale.
Analysts weigh in
Research analyst Piper Jaffray downgraded Hain Celestial and moved its target price for the company to $35 from $43 in the wake of the announcement.
“We strongly believe in the natural and organic product trend and do think Hain has some very strong brands, but we think the risks from traditional competitors, U.K. exposure and internal financial control risk make the stock difficult to own,” Piper Jaffray said. “Internal control issues add to already tough competitive dynamics: We remain concerned on Hain’s ability to compete with well-capitalized traditional packaged good players looking to get more involved in the better-for-you food space. … Private label is also a threat, and we believe either Hain will struggle to drive sales or need to invest in trade/marketing support, both of which will limit earnings expansion.”
Meanwhile, Alexia Howard, research analyst with Sanford C. Bernstein, said the agency has no rating on Hain Celestial as it currently doesn’t know the extent of the company’s accounting issues.
“Investors looking for a silver lining in the clouds currently enveloping Hain have asked us if the recent events might increase the probability that the company will be sold,” Ms. Howard noted in an Aug. 23 research report. “They look at examples like Annie’s buyout by General Mills shortly after it faced its own accounting challenges and to the recent sale of fellow health-and-wellness focused WhiteWave and hope that history could repeat itself here. Some also wonder if the drop in the share price and the company’s obvious governance issues might invite an activist to get involved and possibly push for the partial or total breakup of the company, with or without management’s acquiescence.”
Speculating on what may happen, Ms. Howard said a major barrier to a takeover/breakup is that Hain Celestial wouldn’t be a “clean” sale, meaning there likely wouldn’t be a single acquirer who would be interested in all its units. The most likely breakup scenario, she said, would take many months to find adequate buyers for several major brand groups.
Ms. Howard also raised the possibility of activist engagement, noting that several elements may be attractive to activists, including the sharp price pullback, the current accounting issues, the corporate governance challenges the company already was facing, the potential for margin improvement and the possibility of breaking up or selling the company as a whole.