Playtex Products, Inc.

views updated

Playtex Products, Inc.

300 Nyala Farms Road
West port, Connecticut 06880
U.S.A.
(203) 341-4000
Fax: (203) 341-4260

Public Company
Incorporated: 1988
Employees: 1,600
Sales: $482 million (1995 est.)
Stock Exchanges: New York
SICs: 2676 Sanitary Paper Products; 3089 Plastics Products, Not Elsewhere Classified; 3069 Fabricated Rubber Products, Not Elsewhere Classified; 6719 Holding Companies, Not Elsewhere Classified

Playtex Products, Inc. is a leading manufacturer and distributor of household and personal care products. Its brand name products include Playtex and Ultimates Silk Glide tampons; Playtex Nurser disposable feeding systems for infants; Cherubs and Smile Tote cups and bottles for babies and toddlers; Playtex Living, Handsaver, and Wearshield household and industrial gloves; Banana Boat sun and skin care products; Jhirmack shampoo, conditioner, and styling products; Woolite rug and upholstery cleaning products; and Tek toothbrushes. In the mid-1990s, a 40-percent share of Playtex was sold to Haas Wheat & Partners, an investment firm based in Dallas, for $180 million, in an effort on the part of Chief Financial Officer Michael Goss and others to help pare down interest expenses and to secure for Playtex better funding for its research and development and acquisition programs.

The origins of Playtex Products may be traced to the 1932 founding of the International Laytex Company, which later became known as International Playtex Inc. The company’s primary focus during its early years was in the production of ladies’ undergarments, specifically girdles, for which the company pioneered the development of latex. In 1954, International Playtex applied the latex technology it had developed in making its girdles to a new line of household latex gloves, the first of their kind. Since that time, Playtex gloves have been the top product in this market in the United States.

With this expansion, the company added a Family Products division to its existing Apparel division. In the 1960s the new Family Products division also introduced Playtex disposable nipples and bottles for infant feeding to its product line and acquired a tampon manufacturing business. However, the company was still known primarily for its undergarments.

In 1969, Joel Smilow was named president of International Playtex, which was by then a subsidiary of Glen Alden Corporation, part of Rapid American Corporation. At that time, Playtex had annual sales of $183 million and 12,000 employees. Smilow, a graduate of Yale and a Harvard MBA, had been a brand manager at Procter and Gamble. When passed over there for a promotion, he joined some former P&G colleagues in the formation of Glendinning Cos., a marketing consulting firm. There, one of Smilow’s clients was Playtex; he was eventually recruited by Playtex to fill the presidency.

Smilow brought to Playtex his marketing know-how from the packaged goods industry. Under his direction, the company began marketing bras, girdles, and rubber gloves in individual boxes and running coupon promotions. He also modified the company’s sales approach, encouraging the sales force to make more frequent calls on customers, stocking their inventories as needed rather than just in bulk at the beginning of each season.

In 1975, International Playtex was acquired from Rapid American by Esmark Inc. Esmark allowed Playtex management to operate in relative autonomy, and Smilow was encouraged to diversify the company’s products. He did this mainly by securing the rights to market promising new products at cheap prices, beginning with the expansion of the company’s tampon business.

Tampons were invented in 1936 by Tambrands (long known as Tampax) as an alternative to sanitary napkins. Tambrands had a near-monopoly in this category until the mid-1970s, by which time International Playtex, Procter & Gamble, Johnson & Johnson, and Kimberly-Clark had each introduced its own line of tampons under the brand names of Playtex, Rely, o.b., and Kotex, respectively. By 1980, Tambrands’ share of the U.S. market had fallen from 100 to 42 percent.

The intense competition in this market led companies to strive to offer a better product; for tampons, this meant higher absorbencies, which were achieved by using different chemical compositions. Such new develpments, however, had serious drawbacks. Toxic Shock Syndrome (TSS), first identified in 1977, was a disease caused by a poison produced by a common and usually harmless bacterium, staphylococcus aureus. The majority of victims were menstruating women who used tampons, and in 1980, the Centers for Disease Control reported 890 cases of TSS, the most ever recorded. Tampon absorbency was suspected to be a factor, and Proctor & Gamble voluntarily withdrew their Rely products from the market that fall.

Five years later, researchers from Harvard proved that certain tampon fibers, including polyacrylate rayon, soaked up large amounts of magnesium, and that without that magnesium, staphylococcus aureus produced as much as 20 times the usual amount of the poison. The findings led International Playtex and Tambrands to replace products containing polyacrylate rayon with the safer, although less absorbent, surgical cotton. Product sales declined nationwide, as women were made aware of TSS and were encouraged to curtail their use of tampons in favor of sanitary napkins.

During this time, Esmark chairman Donald P. Kelly had named Smilow president of Esmark’s Consumer Products group, and Smilow had hired Walter Bregman as president of International Playtex. Together, Smilow and Bregman had increased their diversification efforts and International Playtex had moved into marketing cosmetics, hair care, and sportswear.

In 1979, the company secured the rights (for free, according to a 1986 Business Week article) to distribute Jhirmack, a brand of hair care products then sold only in beauty salons. Five years after the first Jhirmack products were marketed in drugstores as an upscale product, the line was reporting annual sales of $70 million. Then, in 1983, International Playtex bought Almay cosmetics, which had been $5 million in the red the year before on sales of $19 million. After one year under Playtex’s control, Almay made $3 million on sales of $33 million.

Smilow and Bregman’s only mistake was with Danskin, acquired by Playtex in 1980 for $40 million. Under Playtex’s parentage, Danskin’s line of fashion swimwear was dropped and the product line was refocused on its rather plain nylon leotards for dancers, just as the fitness craze had women demanding more colors, styles, and cotton fibers in their exercise clothes. Management also decided to drop the company’s sales commission policy, and 60 percent of the sales force left. Within five years Danskin had shrunk from $104 million in revenues and a command of 80 percent of the body wear market to $54 million in sales and a 35 percent share. A group of investors, headed by Byron Hero, Jr., would later acquire Dan-skin for $20 million and help return the company to its position as a leading bodywear manufacturer.

By 1984, International Playtex was a $1.4 billion business, with 40 locations and 24,000 employees. That year, Donald P. Kelly tried to take Esmark private in a $2.4 billion leveraged buyout. He was outbid (by $300 million) by Beatrice Cos., Inc., the food and consumer products conglomerate. Smilow, by then chairman of the International Playtex division, was named executive vice-president and president of Beatrice’s Consumer Products division. However, after four months he left the company and, in February 1985, Walter Bregman was fired from his position as president of International Playtex.

Within 18 months, Kelly, Smilow, and other former Esmark managers had bought out Beatrice and had taken it private in a giant leveraged buyout, borrowing $6.9 billion to do so. Smilow resumed his position as the head of Playtex, However, according to several articles, Smilow wanted his own company. When the lenders wanted a large part of their money back quickly, Kelly had to put parts of Beatrice up for sale.

In August 1986, Smilow and a group of executives formed Playtex Holdings, Inc. and bought International Playtex for $1.25 billion from BCI Holdings Corp., the owner of Beatrice Cos. At the same time, Playtex announced it was selling its cosmetic division to the Revlon Group for $375 million. International Playtex began its transition from being a subsidiary of a large, wealthy corporation to being a smaller, private company. Playtex Holdings created certain wholly owned subsidiaries: Playtex Family Products Corp., Jhirmack, and Playtex Apparel, Inc.

Early in 1988, Johnson & Johnson was poised to acquire Playtex Family Products for $726 million, a deal that eventually fell through. Jhirmack was also for sale during this time, and, according to an Advertising Age article, Smilow was hinting that Playtex Holdings would keep only its Playtex Apparel subsidiary. Then, later that year, an investor group, which included Smilow and other senior executives of Playtex Holdings, formed Playtex FP Group Inc. and bought Playtex Family Products and Jhirmack from Playtex Holdings. When the buyout was complete in December, Smilow became chairman and chief executive officer of the new company, with its wholly owned subsidiary, Playtex Family Group Corporation.

Throughout the buyout morass, Playtex management was making lots of money. Because of a stock option plan that “wasn’t exactly stock-related,” according to Smilow in a 1995 Chief Executive article, every hourly worker at Playtex got a small windfall when management sold the company and bought it back.

At the same time, after the repayment of $340 million of intercompany indebtedness, Playtex Holdings divested Playtex Apparel, Inc. to Playtex Apparel Partnership, L.P., a limited partnership owned by Smilow and the operating management of Playtex Apparel, Inc., for a $40 million subordinated debt. Smilow was named chairman and chief executive officer of Playtex Apparel Partnership, L.P., which focused solely on manufacturing and marketing women’s undergarments.

Smilow was also in control of Playtex FP Group Inc., a heavily indebted manufacturer and/or distributor of tampons, gloves, hair care products (shampoo, conditioner, spray, and styling lotion), and disposable bottles, nipples, and nursing kits for infants. In line with his strategy of building Playtex brands and buying other companies, Playtex acquired the Cherubs collection of hard baby bottles for $9.3 million in 1989. This gained the company an entry into that segment of the infant care market.

Playtex FP’s products operated in highly competitive markets, characterized by the frequent introduction of new products accompanied by major advertising and promotional campaigns. During the early 1990s, this was especially true of the hair care and tampon markets. By 1991, lower-priced shampoos and conditioners with the same up-scale attraction had cut Jhirmack’s share to 2.4 percent of the $1.4 billion market. The company responded by reformulating the Jhirmack product line and positioning it as a fortifying product. Marketing did away with the outer carton, introduced a new bottle, and dropped Victoria Principal, Jhirmack’s celebrity endorser, from its ad campaign. The relaunch of the line was backed by a $23 million ad and promotion campaign with the themes “Bounce back beautiful hair” and “New Jhirmack gives your hair the strength to be beautiful.”

In late 1991, a major advertising and promotion “war” between Playtex FP and Tambrands began over plastic versus cardboard tampon applicators. Playtex FP had been a leader in the plastic applicator field, while Tambrands, Inc. was just about the only producer in the cardboard category. That year, Tambrands introduced its first plastic applicator. Playtex FP responded with Ultimates, a new line of cardboard applicator tampons. Playtex FP’s share of the tampon market increased from 29 to 30 percent for 1992, and its introduction of Ultimates proved timely, as several states began proposing legislation to ban nondegradable plastic tampon applicators for environmental reasons.

Also during 1991, Playtex FP’s senior management approached the Sara Lee Corporation to discern whether that company might be interested in acquiring Playtex FP or in making a large equity investment. In December, Sara Lee acquired 25 percent of the company and an option to purchase all remaining outstanding share of common stock. The proceeds of the $40 million transaction were used to refinance the company’s debt. In November 1991, in a separate action, Smilow’s other company, Playtex Apparel Partnership L.P., became a wholly owned subsidiary of Sara Lee; from that time on, there would be no corporate connection between Playtex undergarments and Playtex tampons.

However, Sara Lee’s stock option placed certain restrictions on Playtex FP. Playtex was not allowed to issue any common stock through the end of December 1993, and all securities issued after that time were subject to the option. Furthermore, the company could not sell assets other than non-Playtex branded businesses.

In 1992, Playtex FP moved into the suntan lotion business when, for $5 million, it bought 22 percent interest in Banana Boat Holding Corp. The Banana Boat line was started by Robert Bell who, at age 13, developed a suntan lotion of baby oil, oranges, and bananas, which he mixed in coconut shells. He sold his concoction to tourists in Miami and Miami Beach for 50 cents to one dollar, including the shell.

Twenty years later, Bell’s company, Sun Pharmaceuticals, marketed 54 tanning and sun-protection products worldwide under the Banana Boat brand and had sales of nearly $80 million. Playtex’s investment allowed Sun, the wholly owned subsidiary of Banana Boat Holding, to acquire the assets of Sun Pharmaceuticals. In 1993, Playtex began distributing Banana Boat sun and skin care products for Sun in the United States and Canada.

By 1993, it was evident that the Sara Lee Corporation was unlikely to exercise its option on Playtex FP stock. Since Playtex management had limited alternatives for reducing its debt, they approached Sara Lee during the summer about terminating the option early and recapitalizing the debt. In December, Sara Lee agreed, for a consent fee of $15 million.

Freed from the option restrictions and attempting to raise much-needed cash, the company changed its name to Playtex Products, Inc. and went public, issuing 20 million shares of common stock in January 1994 at $13 per share. The company also merged its subsidiary, Playtex Family Products Corporation, into Playtex Products, Inc.

At the time, Thomas Cochran noted in a Barron’s article: “Playtex is a fine brand name, but it will carry so much debt [$927 million] that many investors will decide it lacks the resources to survive a business reversal, and additionally, lacks attraction because there is scant evidence to suggest sharp earnings improvement.” The company used the net proceeds of the stock offering and other borrowing under the recapitalization to retire most of its outstanding debt and preferred stock.

The rest of 1994 was a busy year for Playtex. Following the recapitalization, the company completed the purchase of the Smile Tote line of baby products for $7 million. Smile Tote manufactured leak proof cups and bottles for infants and toddlers, using a patented snap top closure. In less than three years it had won 20 percent of the market. In 1991, its toddler juice cup was judged one of the most innovative new products launched that year, earning the Great Expectations award of the Juvenile Products Manufacturing Association. During 1994, Playtex also introduced several improvements in the Playtex disposable nurser line and updated colors, designs, and packaging. The Spill-Proof cup, introduced in October 1993, was the fastest-growing cup in the toddler market category, gaining almost a seven percent dollar market share in its first year.

Playtex also took over the sales and marketing responsibilities for Banana Boat from 17 independent distributors and sponsored a five-event volleyball series with the U.S. Volleyball Association to promote the brand. Rather than conducting large, nationwide advertising campaigns, the company concentrated on local radio. As a result, 50 radio stations, whose listeners were largely women in the 15-37 age group, conducted their own Banana Boat promotions. The promotions consisted of on-the-air contests for event tickets and day-long beach parties, at which Banana Boat products were given away. The marketing had its effect. Banana Boat’s share of the market increased from 9.9 percent in 1993 to 13.7 percent in 1994, second only to Coppertone.

New products introduced at Playtex in 1994 included Dura Mitt, a cleaning tool which combined a latex mitt with a scouring pad or sponge. AcuPoll, a product idea screening company, identified Dura Mitt as one of the year’s best new products, based on initial interest by surveyed consumers. Playtex also brought out several new tampon products, including Ultimates Silk Glide and Multi-Pack.

At the end of the year, the company announced a joint venture with Johnson & Johnson to export tampons abroad. The U.S. tampon market, which accounted for 54 percent of the company’s net sales during this time, was regarded as a mature market, with little expansion likely. Therefore, it was hoped that the joint venture with Johnson & Johnson for overseas exports would help offset U.S. market trends.

Acquisitions continued apace in the mid-1990s. In February 1995, Playtex bought the assets of the Woolite rug and upholstery cleaning business for $20 million from Reckitt & Cole-man. While Reckitt & Coleman, a London-based consumer products giant, retained the Woolite trademark, Playtex received a royalty-free trademark license. Woolite generated about $35 million in sales annually.

A major management change occurred later that year when Playtex sold 40 percent of its stock to Haas Wheat & Harrison Investment Partners for $180 million. Seven increases in short-term interest rates and increased promotional spending, particularly in the tampon market, had left the company with limited financial flexibility for new product development or further acquisitions. Management and various investment banks approached, directly or indirectly, 20 companies in the personal care industry, three companies in the paper products industry, and four pharmaceutical companies regarding the sale of Playtex Products. There were no takers until Haas Wheat, a Dallas investment firm, indicated its interest.

Joel Smilow, then 62 years old, resigned as chairman and CEO at this time. Robert Haas, chairman of Haas Wheat, replaced him as company chair, while Michael R. Gallagher, formerly of Reckitt & Coleman, was named CEO. When Playtex president and chief operating officer Calvin Gauss resigned in September 1995, Gallagher assumed his duties as well. Executive vice-president and chief financial officer positions were awarded to Michael F. Goss, formerly of Oak Industries. The new management team had its work cut out for them as Playtex Products faced depressed earnings and increased competition.

During the year the company completed acquisition of the remaining 78 percent of Banana Boat Holding Corp. it did not already own for a purchase price of $40.4 million plus the assumption of $27.1 million of long-term debt. “Sun care will now join our tampon, infant care, and glove businesses as a core part of Playtex’s future,” Gallagher stated in announcing the action.

By the end of 1995, Playtex had reduced its debt and its brands had strong, stable positions in their domestic markets. Earnings for 1995 and 1996 were expected to be low, however, because of the competitiveness of Playtex’s markets and the need to spend so much for marketing. The company was still highly dependent on the tampon market, which represented 54 percent of its $473.3 million in sales in 1994 and more than two-thirds of its profits. Moreover, the company and its rival Tarn-brands were facing several lawsuits implicating their roles in cases of Toxic Shock Syndrome. In order to reduce the company’s dependence on its line of tampons, new leadership at Playtex Products appeared to be following the company’s long-term strategy of adding new products to its existing lines and buying up smaller businesses.