American Home Products Sells Kolynos Businesses to Colgate-Palmolive for $1.04 Billion

Strategic Insights -

In a move to reduce debt and improve its credit rating, American Home Products Corporation has agreed to sell its oral health businesses in South America to Colgate-Palmolive Company. The deal, worth $1.04 billion, will primarily be used to repay debt, which the company borrowed to acquire American Cyanamid last year. The oral health business, under the Kolynos trademark, had sales of about $290 million in 1994, primarily in Brazil, Argentina, Colombia, Peru, and Uruguay.

Key Takeaways:

  • American Home Products is selling its oral health businesses in South America to Colgate-Palmolive Company for $1.04 billion.
  • The sale will primarily be used to repay debt, which the company borrowed to acquire American Cyanamid last year.
  • The oral health business had sales of about $290 million in 1994, primarily in Brazil, Argentina, Colombia, Peru, and Uruguay.
  • Analysts say the sale makes sense for both parties, with Colgate-Palmolive gaining a significant share of the Latin American oral care market and American Home Products reducing its debt.
  • American Home Products will retain its presence in South America, producing prescription and over-the-counter drugs and agricultural weed- and pest-killers.
  • The company's products include Advil and Anacin analgesics, Premarin, an estrogen replacement drug, Norplant contraceptives, and infant formula.
  • American Home Products will have $12.6 billion in annual sales following the American Cyanamid merger.
  • Reducing debt will be "a positive, but not enough to change the American Home's credit rating," according to David Lugg, a pharmaceutical analyst at S.& P.
  • Moody's Investors Service is reviewing Colgate's credit rating for a possible downgrade.
  • Possibilities for American Home Products to pare its debt further include selling its food business, medical device lines, or portions of American Cyanamid's medical products business.

Statistics:

  • $1.04 billion: The sale price of American Home Products' oral health businesses in South America to Colgate-Palmolive Company.
  • $290 million: Sales of the oral health business in 1994.
  • 79%: Colgate-Palmolive's share of the Latin American oral care market, post-acquisition.
  • 54%: Colgate-Palmolive's pre-acquisition share of the Latin American oral care market.
  • 11%: Unilever's share of the Latin American oral care market.
  • 4%: Proctor & Gamble's share of the Latin American oral care market.
  • 5.8%: Worldwide demand for toothpaste growth rate.
  • $7.55 billion: Colgate-Palmolive's 1994 sales.
  • $63.25: American Home Products' stock price on the New York Stock Exchange, down 50 cents.
  • $59.75: Colgate-Palmolive's stock price on the New York Stock Exchange, down 25 cents.

Sources:

  • "American Home Products to Sell Dental Units for $1.04 Billion," The New York Times, September 1, 1994.
  • "Colgate-Palmolive to Buy American Home Products' Toothpaste Business," Bloomberg, September 1, 1994.
  • "American Home Products Falls on Debt," The Wall Street Journal, September 1, 1994.