Helen of Troy: Could Weakness Lure Suitors?

Helen of Troy HELE -10.41% Ltd. spooked investors Wednesday morning. The consumer products company slashed its 2015 earnings guidance and admitted to weakness in its personal-care business.  Shares sank more than 10% after the company’s announcement.

 

But it may not have scared potential buyers away.

 

Don Bilson, head of event-driven research at Gordon Haskett Research Advisors, argued Wednesday that this weakness raises the possibility of the consumer products company striking a deal.

 

Activist investors have been circling Helen of Troy for much of this year. In February, Sachem Head Capital Management, a $1.6 billion hedge fund, urged the company to consider a sale.

 

Helen of Troy eschewed a deal, and instead bought back roughly 29% of its stock.

 

After Wednesday’s announcement, Mr. Bilson thinks the company’s management could be losing credibility with its shareholders and its management may be forced to reconsider a sale.

 

As Sachem pointed out when it pushed for a sale, Helen of Troy’s Bermuda headquarters alone makes it an attractive target. A U.S. buyer could structure the deal as a tax inversion and redomicile in Bermuda for tax purposes, Mr. Bilson writes, citing Spectrum Brands as one possible suitor.

 

Helen of Troy was one of the original inverters. In 1993, the company moved its headquarters to Bermuda by becoming a subsidiary of a shell corporation based there, lowering its tax base by doing so.

 

In response to Helen of Troy’s move, the Treasury tried to hit back at companies that chose to move their headquarters out of the U.S. In what’s become known as the Helen of Troy rule, the Treasury forced shareholders of companies that invert to pay gains on the stock of that company.

 

With  Wednesday’s slide, Helen of Troy’s stock is trading around $53 per share,  well below the $66.50 buyback price and the $70 it traded at in early March.

 

The question now: Is a cheaper share price, an enticing location and a  management team likely to face more shareholder pressure enough to stir up a deal?

 

Helen of Troy did not return immediate requests for comment.