The Scotts Miracle-Gro Company (SMG) has sold its approximate 30 percent stake in TruGreen to TruGreen’s majority owner, Clayton Dublier & Rice (CD&R) for approximately $234 million.
In 2016, SMG contributed its wholly owned subsidiary, Scotts LawnService, into a joint venture with TruGreen, creating the largest do-it-for-me lawn service company in America. Seventy percent of the joint venture was owned by the private equity firm CD&R, its co-investors and TruGreen management, with the balance owned by ScottsMiracle-Gro.
In addition to the sale, SMG also received cash proceeds of another $18.4 million in connection with the assignment to a third party of debt of the joint venture held by the Company. The combined proceeds, approximately $120 to 140 million on an after-tax basis, will immediately be applied to reduce the Company’s indebtedness.
Upon the creation of the joint venture, SMG received an approximate $200 million tax deferred dividend. In 2017, it received another tax-deferred dividend of approximately $90 million. Those two payments were essentially equal to the initial valuation placed on Scotts LawnService when the joint venture was established.
“Shareholder value was clearly maximized by the creation of this JV and now our divestiture of this investment,” said Randy Coleman, chief financial officer. “Using these proceeds to reduce our debt should allow us to lower our debt-to-EBITDA ratio below 4.0 by the end of fiscal 2019 and to 3.5 times debt-to-EBITDA by the end of 2020. At that level, management would once again begin to explore options to proactively return more cash to shareholders.”