Playtex Contemplates Sale or Merger

Playtex Products Inc., Westport, CT, the maker of baby care products, suntan lotions and tampons, announced it is looking at strategic options, including the possibile sale of parts or all of the company. It has hired J.P. Morgan Chase & Co. as its financial adviser.

The consumer product company’s decision is purportedly being driven in part by the desire of Haas Wheat, the investment firm that owns roughly one-third of Playtex and has been a longtime holder, to cash out of its investment. If the company doesn’t put itself on the selling block, Playtex said it may merge with another company to form a larger personal care and household products concern, or may purchase other operations or businesses.

“We are pleased with the momentum behind our financial performance in recent quarters and remain committed to our strategy of growing leadership positions through product innovation,” chief executive Michael R. Gallagher said in a statement. “However, the senior management team and board of directors believe that the company’s value is not appropriately recognized in the public equity market, and we remain committed to our obligation to deliver maximum value to our shareholders. This process is an important step to ensure that goal is achieved.”

Playtex shares have been lackluster in recent years, and have fallen roughly 32% in the past six months, as the company has been hurt by intense competition in its tampon business.

Playtex, which also makes Diaper Genie diaper-disposal systems and Banana Boat suntan lotions, has a market capitalization of about $580 million but debt of more than $800 million. While it is unclear how much Playtex would fetch, some value investors believe the company is undervalued because of its array of niche but well-known brands. The company also gets scant attention from Wall Street analysts, so it is often ignored by investors.

Procter & Gamble Co., the most obvious buyer of any consumer company, is out of the running due to antitrust concerns because it owns Playtex’s biggest competitor, Tampax. The same goes for Kimberly-Clark Corp. and Johnson & Johnson.

Playtex has proved a formidable competitor to P&G in the tampon business, and has established itself as a strong No. 2 brand in the U.S., with a 30% share of the market, compared with P&G’s 40% share.