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Beauty Roundup: September 28, 2012

The first question asked by retailers when told of Markwins International Corp.’s offer for Physicians Formula was what is the future role of Jackel and Rogers.

Markwins and Physicians Forge a New Power

Physicians Formula had numerous owners over the years, but the brand found a true champion under the watch of Ingrid Jackel. Jackel, the chief executive officer of Physicians, truly understood the DNA of the brand and nurtured it to become one of the most respected names in mass beauty.

“Ingrid is by far the best product development person in the market; the most creative,” said a senior retail executive. Additionally, retailers heap praise on Jeff Rogers, Physicians’ president, who has some of the best contacts in the business. “I can see him ascending in the company [Markwins],” said one retailer familiar with Rogers.

No wonder the first question asked by retailers when told of Markwins International Corp.’s $74.9 million cash offer for Physicians Formula was what is the future role of Jackel and Rogers. The second question was what happened to the previous offer for Physicians from Swander Pace Capital. That was an easy answer since the new offer is a much higher bid ($74.9 million versus $65 million).

Markwins executives said the team will stay intact and operate under its current headquarters for now. Those familiar with both companies even see potential for Jackel’s marketing magic to spread across the entire Markwins’ portfolio while Rogers can add to a healthy sales network.

A few retailers did note that Jackel has been courted by many beauty powers and they expect she’ll have other offers on the table. There’s no denying, however, Jackel’s intense love of Physicians and what it brings to the market. Physicians was founded in 1937 by a doctor named Frank Crandall. The original products were for sensitive skin. Pierre Fabre purchased the company in 1990 and when Jackel joined she helped steer it into problem and solution-solving makeup. In 2003, Pierre Fabre spun the company off. In 2006, Physicians went public, a move that propelled Jackel into a role of heaping on business responsibilities in addition to product development and marketing.

While at first blush Markwins and Physicians seem at different ends of the price spectrum, those dissecting the deal see synergies. For one thing, Markwins’ and Physicians are both based on the west coast so assimilation should be seamless. Also, Markwins’ has amazing production capabilities that can bring Physicians’ costs down while keeping high standards. “Their production in China isn’t a plant,” said one source. “It is a city.”

Markwins’ executives have long coveted an acquisition and have stated that at industry gatherings over the past few years. Physicians gives it an avenue to cross into the more lucrative skin care business while not cannibalizing from its value cosmetics brands such as Wet ‘n Wild. For Markwins the deal helps strengthen its position in the trade. “The budget business, though robust right now, has competitively heated up, so it gives them another sub-segment of the mass business to offset any loss in their budget market share,” said one industry insider. A major top executive at a drug chain added that Wet ‘n Wild is “on fire” now and this gives them an avenue to trade up,” a chain executive said.

Added an industry consultant, “I honestly think that it helps get them off the hook legally from shareholder suits over the acceptance of an undervalued bid. With Markwins manufacturing and sourcing prowess, they can increase their margins by moving some, if not all manufacturing into the Markwins production facilities in China.”

The acquisitions could prove profitable quickly. “When you put Physicians into Markwins’ manufacturing plants, strip out headquarters and sales force costs, it could be profitable for Markwins relatively quickly. It could also fill a hole in drug chains and mass merchandisers if Markwins used its other lines to pursue dollar stores,” added industry consultant Allan Mottus.

People, Places and Things

A few words with Eric Chen, Markwins chief executive officer and Bill George, president and chief operating officer about the offer for Physicians Formula.

Chen:
The acquisition of Physicians Formula fulfills a strategic Markwins objective to expand and diversify our already robust brand portfolio. We believe this is a synergistic acquisition that creates an immediate opportunity to broaden our consumer base and enrich our retail partnerships.

George: We’ve long been admirers of the brand. The company brings a rich, longstanding history of innovative beauty solutions, a deep management team and it is — like Markwins — a high-growth organization that sees great hope in international [expansion]. We have no plans to make material changes in management.

What’s In Store

NACDS Taps Powell:
General Colin L. Powell, USA (Retired) former U.S. Secretary of State and former Chairman of the Joint Chiefs of Staff will make a return performance as the keynoter at the National Association of Chain Drug Stores’ Foundation Dinner to be held in New York City on November 27.

City Chemist Showcases Vintage Lauder Items: City Chemist in Brooklyn will hold a pink ribbon cutting ceremony on October 5 to mark the 20th anniversary of The Breast Cancer Research Foundation founded by the late Evelyn Lauder. The windows will showcase vintage archives.