UPDATE 2-Spectrum to sell pet unit to Salton

(Adds that $692.5 million sale price is cash, paragraph 1; adds share price, last paragraph)

NEW YORK, May 21 (Reuters) - Spectrum Brands Inc SPC.N plans to sell its pet products business, which includes Tetra fish food, to Salton Inc for $692.5 million in cash, the companies said on Wednesday, as Spectrum seeks to improve its capital structure.

Salton, which sells appliances under the George Foreman and Toastmaster brands, will also surrender $222.5 million of Spectrum debt securities, minus up to $6.5 million in unpaid interest.

Spectrum, owner of Rayovac batteries and Remington shavers, said it will use the proceeds from the sale to pay down debt.

Spectrum said last August that it aimed to sell "an attractive strategic asset" by the end of 2007, and analysts guessed it would be the pet business. In October, the company said the global credit crunch had forced it to delay the sale.

Salton said it expects to finance the deal with an equity investment from Harbinger Capital Partners, its controlling shareholder.

Shares of Spectrum closed up 22 cents, or 4.9 percent, at $4.72 on the New York Stock Exchange on Wednesday. (Reporting by Aarthi Sivaraman and Martinne Geller; Editing by Derek Caney, John Wallace, Gary Hill)