STANHOME INC. AGREES TO LICENSE U.S. DIRECT SELLING BUSINESS TO CPAC, INC.; Arrangement Will Improve Stanhome's Future Operating Profit; New CEO Named to Worldwide Direct Selling Group

Business Wire, Jan 18, 1995

WESTFIELD, MA. and LEICESTER, N.Y.--(BUSINESS WIRE)--January 18, 1995--Stanhome Inc. (NYSE:STH), in a move to exit the U.S. Direct Selling business, announced today it has signed an agreement to license the domestic operations of its Worldwide Direct Selling Group to CPAC, Inc. (Nasdaq:CPAK).

The business to be licensed, known as Stanley Home Products ("SHP"), markets home care, personal care and cosmetics items to consumers through direct selling programs. SHP, with net sales of approximately $36 million in 1994, has produced operating losses for the past several years. It represents approximately 14% of the Worldwide Direct Selling Group's 1994 net sales and less than 5% of Stanhome Inc. total sales.

The agreement calls for CPAC to license the trademarks and formulas of SHP for use in the U.S., Puerto Rico and Canada. Terms of the licensing agreement were not disclosed. The transfer of SHP's business to CPAC is expected to be completed by the second quarter of 1995.

The transaction will enable Stanhome to focus on its business segments with the greatest potential for growth and profitability. These include Enesco Worldwide Giftware Group, Hamilton Worldwide Direct Response Group, and the international businesses of the Worldwide Direct Selling Group. For CPAC, a specialty chemical manufacturer that recently acquired the Fuller Brush Company, the agreement adds a complementary product line of home care, personal care and cosmetics products with a very well established and respected brand name.

In connection with the transaction, Stanhome will close SHP's facilities in the U.S. and Puerto Rico during the first quarter of 1995 and will pay employee severance benefits. It is anticipated that the 1995 total costs to exit the SHP operations will be offset in the same year by a comparable amount of gains, approximately $6 million, primarily from the sale of SHP's distribution facilities. The costs to exit the SHP operations are therefore not expected to have a material adverse impact on Stanhome's financial results for 1995, and earnings should benefit from the elimination of SHP's operating losses. For 1994, the U.S. and Puerto Rico operations lost approximately $3.5 million.

Additionally, in the 1994 fourth quarter, Stanhome will record an expense for contractual compensation obligations of approximately $3.5 million pre-tax, or approximately $0.11 per share after tax. Including this charge, the Company said 1994 earnings per share are expected to be in the range of $2.25. This compares with $1.67 per share in 1993, which included a restructuring charge of $0.58 per share.

G. William Seawright, Stanhome's President and CEO, stated, "The License Agreement for SHP accomplishes a number of objectives for Stanhome. It will improve our financial performance by exiting a business which has not been operating profitably and would require substantial investment to produce satisfactory growth and earnings; yet, it also allows Stanley Home Products, a business with a venerable brand name and dedicated sales organization, to operate as a going concern and to continue to provide an opportunity for its nationwide salesforce. Stanhome will also derive royalty income from the licensed SHP business as it benefits from synergies with CPAC's Fuller Brush operations."

Thomas N. Hendrickson, CEO of CPAC, noted, "This is an extremely attractive transaction for CPAC. Stanley Home Products and our Fuller Brush division share a common heritage of direct selling. At the same time, their strengths are complementary, with Fuller holding a major position in the industrial sector, while SHP is well positioned in consumer markets. We intend to operate the Fuller Brush and SHP product lines as separate divisions, but expect to benefit from economies of scale by sharing our state-of-the-art manufacturing and distribution capacity. With combined net sales in excess of $60 million and a sales force of over 35,000 independent sales representatives in North America, we will have the critical mass to be a major factor in our markets."

Related Actions

In connection with this transaction, Stanhome will close its SHP Direct Selling headquarters office in Easthampton, Massachusetts and regional distribution centers in Charlotte, North Carolina; San Antonio, Texas; Torrance, California and Bayamon, Puerto Rico. SHP U.S. has approximately 80 Associates in marketing and sales administration, and approximately 70 Associates in its distribution centers. CPAC is evaluating its staffing needs and is expected to offer employment to a number of Associates. Those not offered employment by CPAC will be provided with a severance package and out- placement services by Stanhome.

Coincident with this change, Stanhome will relocate the headquarters of its Worldwide Direct Selling Group to Paris, France following the licensing of the SHP business. The move is intended to link management more closely to the international activities of the Group, which will continue to market home care, personal care, cosmetics and giftware items in Europe and Latin America. They will also be responsible for developing new businesses and managing the CPAC licensing relationship.