Marketing 12th Edition by Charles Lamb,Charles Lamb,Joe Hair

Exercise 23

PART 3: PRESTIGE BRANDS, INC.: TRANSFORMING THE BUSINESS
Prestige Brands markets, sells, and distributes over-the-counter healthcare and household cleaning products to retail outlets in the United States, Canada, and certain international markets. In September of 2010, the company's over-the-counter (OTC) healthcare products included:
→ Chloraseptic Sore Throat Relief
→ Clear Eyes
→ Cloverine
→ Compoz
→ Compound W
→ Dermoplast
→ Ezo
→ Freezone
→ Kerodex
→ Little Remedies
→ Momentum
→ Mosco
→ Murine Earigate
→ Murine Ears
→ Murine Homeopathic
→ Murine Tears
→ New-Skin Liquid Bandage
→ New-Skin Scar Fade
→ Outgro
→ Oxipor
→ Percogesic
→ The Doctor's Brush Picks
→ The Doctor's Night Guard™
→ Wartner Household brands included:
→ Chore Boy
→ Cinch
→ Comet
→ Comet Spray Gel Mildew Stain Remover
→ Spic and Span

SHAREHOLDER VALUE CREATION STRATEGY
Shareholder value creation at Prestige Brands follows a three-pronged strategic approach: driving core organic growth, a merger and acquisition effort focusing exclusively on OTC, and strategic portfolio management. To drive organic growth, the company focuses on five key areas: brand positioning, compelling creative concepts, increasing advertising and marketing support, listening to and responding to retail customers, and connecting with consumers as they are end users of the brands. The second prong of the strategy to create shareholder value involves an exclusive OTC merger and-acquisition focus. The company has three major acquisition criteria. One, the focus is exclusively on the OTC healthcare market. The OTC healthcare market is a growth market with favorable demographic trends and attractive margins. Two, the company seeks to acquire brands that are broadly recognized by consumers, possess scale strength to make them particularly relevant to retailers, and are additive to the core categories within the company. Three, the company looks closely at the financial characteristics of all potential acquisitions: accretive to growth and earnings, a prudent capital structure, and economics driven by the brand's ability to enhance potential shareholder value. The third prong of the corporate strategy is to effectively manage the portfolio of products and brands over time. Specifically, this prong involves periodically reassessing which brands are the best long-term from a portfolio standpoint and then adjusting the portfolio accordingly.
A TRANSFORMATIONAL ACQUISITION: BLACKSMITH BRANDS
With core organic growth and strategic portfolio management in mind, Prestige Brands acquired Blacksmith Brands in the fall of 2010. Blacksmith Brands owned five leading consumer OTC brands:
→ Efferdent Denture Cleanser
→ Effergrip Denture Adhesive
→Luden's Throat Drops
→ PediaCare Children's OTC Medicines
→ NasalCrom Nasal Allergy Spray
This was considered a transformational acquisition for the company, as it was a meaningful step in its long-term strategy of an increasing presence in the OTC healthcare arena and in building a brand portfolio that would enable organic growth. The addition of the well-known Blacksmith brands would strengthen Prestige's platform in its core cough/cold and oral care categories. In particular, Prestige was strengthening its position in key categories with the additions of Efferdent, PediaCare, and Luden's. These three scale brands competed in attractive categories that Prestige Brands knew well, and they offered a clear path for shareholder value creation through increased brand support and line extensions. The acquired brands were well aligned across Prestige's key OTC categories:
OTC Category Brands
Cough/Cold Chloraseptic, Luden's, PediaCare, Little Remedies, NasalCrom
Oral Care Efferdent, Effergrip, The Doctor's Night Guard™, Ezo
Eye Ear Care Clear Eyes, Murine
Skin Foot Care Compound W, Wartner, New Skin, Dermoplast
Other Percogesic, Compoz
Increased support of the core OTC healthcare franchise after the acquisition of Blacksmith Brands focused on innovative advertising and promotional campaigns and new product launches. The commitment to equity building brand support of the acquired brands was reflected in a national television campaign and digital marketing for PediaCare; a radio campaign, digital marketing, sampling, and free standing inserts (FSIs) for Luden's; and bonus packs and FSIs for Efferdent and Effergrip.
A MAJOR MILESTONE
Prestige Brand's net revenue for the first nine months of fiscal 2011 grew 8 percent to $240.1 million.
As a result of the increased advertising and support behind the core OTC healthcare franchise, the core OTC portfolio significantly outperformed their respective categories for the period. Overall, during the latest quarter, Prestige Brands (with the Blacksmith acquisition) experienced a 26.5 percent gain in consumption of its core OTC sales versus fl at category consumption of these categories in aggregate. According to Matthew Mannelly, CEO, "The acquisition of Blacksmith Brands represents a transformative and exciting opportunity for us. Our strategy seems to be working, as evidenced by our growth in revenues and data demonstrating our brands' growth at a rate significantly faster than the overall category growth. And, the Company is strengthened by having a stronger brand portfolio to offer our retail customers."
What role can acquisitions play in building a product portfolio and creating shareholder value?