Everything But the Kitchen Sink – NACCO to Spin Off Hamilton Beach Kitchen Appliance Division

NACCO Industries (NC) announced Monday that it has filed with the SEC regarding “a proposed spin-off… of its housewares-related business to NACCO shareholders.” Remaining in the company would be its mining business — I guess there just isn’t a market for coal-powered blenders.

From the press release:

Hamilton Beach Brands Holding Company, as an independent public company, will own and operate the Hamilton Beach Brands, Inc. and The Kitchen Collection, LLC subsidiaries of NACCO Industries.  NACCO Industries will not receive any proceeds from the spin-off.  Subject to the effectiveness of the registration statement, it is expected that the spin-off will be completed during the third quarter of 2017 and be tax-free to both NACCO and its stockholders.

Hamilton Beach Brands Holding Company (expected to trade as HBB) would include a significant majority of NACCO’s current revenue, leaving behind the much smaller coal business, The North American Coal Corporation. The two companies it contains together netted a loss in the first two quarters. It probably didn’t help that they still rely on physical retail stores, doing more than three times as much business at Wal-Mart(WMT) (32%) than through Amazon(AMZN) (10%). The business is seasonal, however, and they should make money in Q3 and Q4. HBB would qualify as an “emerging growth company”, giving it slightly relaxed reporting requirements.

Current CEO Alfred M. Rankin Jr. will resign his role as CEO of NACCO with the spinoff. He will become executive chairman of HBB and retain a seat on the NACCO board as non-executive chairman. J.C. Butler Jr., current CEO of The North American Coal Corporation, will replace him as CEO of NACCO, the company announced Monday.

This isn’t the first spinoff we’ve seen from NACCO — spinoff aficionados will recall NACCO’s 2012 spin of Hyster-Yale (HY)

Hamilton Beach To Have Dual Class Structure

Interestingly, the company plans to both Class A and Class B shares, giving one share of each in Hamilton Beach Holding stock to each owner of current NACCO stock, whether Class A or Class B. Since each Class B share has ten votes, this transfers voting power to current Class A NACCO holders, who will have about 77% of the voting control over Hamilton Beach Holdings (they currently control 25.1% of the parent).

NACCO explains the distribution in its S-1 filing:

The NACCO Charter provides that each share of NACCO Class A Common and NACCO Class B Common is equal in respect of rights to dividends and any other distribution in cash, stock or property. Therefore, pursuant to the terms of the NACCO Charter, NACCO is required to distribute one share of Hamilton Beach Holding Class A Common and one share of Hamilton Beach Holding Class B Common for each share of NACCO common stock, whether NACCO Class A Common or NACCO Class B Common. As a result… the proportionate interest that NACCO stockholders will have in Hamilton Beach Holding following the spin-off will differ from the interest those stockholders currently have in NACCO.

So… that explains the distribution, I guess. But why have two classes at all? Cui bono? At first glance, it seems like none of the directors or other major shareholders have an interest in there being two classes of shares — their holdings comprise the same percentage of Class A and Class B shares, meaning that their voting power will remain unaffected by the spinoff. A look at the rules for Class B shares, however, reveals that they are converted to Class A shares if sold. NACCO also plans to give shareholders a form to convert their Class B shares.

Why does this matter? Well, every time someone sells a Class B share, he destroys nine votes, redistributing voting power to the other shareholders. Assuming a reasonable number of shareholders want to sell their shares, those that don’t gain significant power at no cost. Seeing as the founding family currently controls just under 50% of the company, that should be enough to push them over the edge.

Of course, that isn’t the likely reason for a spinoff; just a by-product. One reason given by the company is to ensure that it can find Rankin’s successor — something hard to do in a company with disparate businesses. Which leads us back to where we started — what is a coal company doing with an appliance company?

Disclosure: The author holds no position in any security mentioned in the article.

15 thoughts on “Everything But the Kitchen Sink – NACCO to Spin Off Hamilton Beach Kitchen Appliance Division

  1. Steve

    no market for coal powered blenders- really? what is used to produce the electricy at the power plant for all our electric appliances? (in the US and Asia where coal fired plants are still built)…

  2. Brad

    The best line, “I guess there just isn’t a market for coal-powered blenders.” However there does seem to be a market for coal powered cars. 30.4% of the USA’s electricity came from coal fired plants in 2016.

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