Henkel to sell Ecolab shares, cut jobs
DUESSELDORF, Germany (Reuters) - Germany's Henkel (HNKG_p.DE), maker of Persil detergent and got2b hair products, posted flat fourth-quarter earnings hurt by high raw-material costs and said it would cut jobs and sell shares in Ecolab Inc (ECL.N) to buy part of National Starch.
The divestment news calmed investors who were beginning to worry about how Henkel would finance its 4 billion euro ($6.02 billion) acquisition of the adhesives and electronic materials businesses of U.S.-based ICI division National Starch. ICI is now part of Akzo Nobel (AKZO.AS).
Henkel has said it could issue up to 2.5 billion euros of debt and retain its A credit rating but had yet to say how it would raise the remaining money.
"Henkel decided to undertake divestiture of all or part of its stake in Ecolab. No final decision has been taken at this time as to the size, the timing and method of any such divestiture," the company said.
It owns 29.4 percent of St. Paul, Minnesota-based Ecolab, a stake worth about 2.5 billion euros at the end of December.
Ecolab noted its stockholder agreement with Henkel includes a right of first refusal. "We are prepared to work with Henkel on a transaction, which may include the repurchase of some shares by Ecolab," Douglas M. Baker, Jr., Ecolab's chairman, president and CEO, said in a statement.
Henkel shares were up 2.6 percent at 31.36 euros by 7:50 a.m. EST, despite CEO Ulrich Lehner saying Henkel would not meet its operating earnings margin target of 12 percent in 2008.
"BEST OPTION"
The stock, which has fallen about 20 percent this year, was the leading gainer on the blue-chip DAX index.
"Henkel has taken the best financing option in its armoury to acquire National Starch," said Harold Thompson, an analyst at Deutsche Bank. "Fundamentally the acquisition will be earnings neutral to modestly earnings enhancing in three years time."
The Duesseldorf-based group said organic sales, excluding acquisitions and currency movements, would grow 3 to 4 percent in 2008 and that operating earnings growth would exceed that.
Earnings before interest and tax (EBIT) in the quarter to the end of the December were 323 million euros, below a Reuters poll average forecast of 349 million euros.
Henkel said it planned to cut 3,000 jobs from its 57,000-strong workforce.
The cuts are expected to save it up to 150 million euros a year starting in 2011, it said, adding that it would also hike prices as raw material costs increased further.
"It is very difficult to work around these high raw material costs," Chief Financial Officer Lothar Steinebach said. "We need to see what part of that will have to be passed on to the markets."
JPMorgan analyst Celine Pannuti said that while the restructuring could be taken as a positive, previous similar programs -- two since 2001 -- have shown "no tangible improvement in reported margin".
Henkel's EBIT margin in 2007 was 10.3 percent, up 10 basis points from 2006.
"Although we do not expect to achieve our target EBIT margin of 12 percent in 2008 ... I am confident we will exceed the 12 percent mark in the near future," Lehner told a news conference.
He did not give a timetable but said Henkel would offer a more concrete earnings forecast in May.
Henkel trades at about 13 times 2009 estimated earnings, broadly in line with peers.
Some analysts rate the stock a hold because of its exposure to the cyclical adhesives market, exposure to the suffering U.S. economy and somewhat weak brands compared with competitors such as L'Oreal (OREP.PA), Beiersdorf's (BEIG.DE) Nivea or Procter & Gamble (PG.N).
But others, who rate Henkel a buy, point out the company garners more than a third of its sales from emerging markets and could be in for an earnings upgrade following the integration of the National Starch acquisition.
(Editing by Quentin Bryar)
