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Escada Exits Beauty, Wella Licenses Brand

<CS:BOLD>PARIS -- After 12 years in the category, Escada has exited the beauty business by selling its assets and licensing its name to Wella.<BR><BR>Wella Group AG announced Monday its acquisition of Escada AG's beauty division, Escada Beaute Group...

PARIS — After 12 years in the category, Escada has exited the beauty business by selling its assets and licensing its name to Wella.

Wella Group AG announced Monday its acquisition of Escada AG’s beauty division, Escada Beaute Group SA, which is based here. The acquisition was done through Wella’s Paris-based Parfums Rochas SA business. Wella also signed a long-term, worldwide licensing agreement with Escada AG for the manufacturing and marketing of fragrances and cosmetics. Under the agreement, Escada AG retains some creative rights to the Escada brand.

Financial terms of the deals — which are still pending government approval and are meant to go into effect on April 1 — were not disclosed. Yet industry sources estimate that Wella may have paid as much as 100 million euros, or $86.95 million at current exchange rates, for Escada Beaute. Sources also indicate that the licensing agreement is for an initial term of 15 years, with a provision for a 15-year extension.

News of the deals did not rock the financial community. Shares of Escada AG, of Dornach/Munich, closed up 1.25 percent, at a unit price of 19.43 euros, versus the previous day’s close on the German bourse.

“The deal is not that critical for Wella from an earnings point of view,” explained one European analyst. “But from a strategic point of view, it is probably OK. Wella’s portfolio of prestige beauty brands is not that great at present. Although it does have Parfums Gucci, much of the rest of its names are bridge [or midrange]. Escada could improve the average quality of Wella’s brand portfolio.”

Through Rochas, Escada Beaute will become part of Wella’s Cologne-based Cosmopolitan Cosmetics GmbH beauty division that rang up about $556.52 million last year and includes other brands such as Dunhill, Montblanc, Mexx, Marc O’Polo, Naomi Campbell and 4711.

According to Wella, the acquisition was made for two main reasons: “[to extend] the brand portfolio and at the same time [focus] on the segment of higher priced international prestige fragrances,” explained Heiner Gurtler, chairman of Wella AG’s management board, in a statement. “The strong position of Cosmopolitan Cosmetics in the global fragrance market will be expanded. The acquisition and the globalization will successfully be continued.”

Escada, for its part, wanted to form a “strategic alliance” with Wella to take the company into the next stage of its development.

Escada Beaute, which is now comprised of some 200 employees, generates an estimated $65.21 million, according to industry sources, of which about $44.34 million come from Escada-branded goods. Alongside its Escada Sentiment scent, the company’s sales are driven by limited-edition fragrances, particularly its “couture” scents, whose bottles are designed to look like they’re swathed in a piece of material from an Escada couture dress.

Other Escada Beaute-owned businesses include its U.S.-based Adipar subsidiary, which distributes fragrance brands including Burberry, Floris, Lalique, Parfums Gres and Bobby Jones. Adipar’s American volume has been estimated by industry sources at $35 million wholesale. Escada sold Parfums Gres last October, then entered into a distribution agreement for the U.S.

As part of the deal, Wella also acquired Escada’s shares in a joint venture with a Korean makeup company, Hanbul, that has resulted in a $18 million local business. Werner Hofmann, Wella’s senior vice president in charge of North America and Asia, noted that Wella plans on doing a color cosmetics line for Escada. He added that Escada Beaute will be run as a freestanding subsidiary with its own factory and American office. Its parts will not be integrated, he said, noting, “We have so many brands that we need to diversify in terms of business units.”

The beauty business did not have the critical mass that Escada needed. “In the fragrance market today it is quite uncomfortable to be a midsized, independent company,” explained Richard Simonin, board member in charge of Escada’s accessories and licensed businesses and chief executive officer of Escada Beaute. He said it is also highly difficult for mid-sized beauty companies to compete in Europe’s increasingly consolidated retail outlets. For the 18 months prior to the sale, Simonin concentrated on reorganizing the management team and paring down Escada’s beauty offerings.

Escada Beaute is expected to introduce a new Escada fragrance next fall and a new line of Escada cosmetics in 2005.