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LONDON — Unilever is poised to grab a bigger slice of the U.S. personal care market with the $3.7 billion cash acquisition of the Alberto-Culver Co., the Illinois-based owner of brands including Nexxus, V05 and St. Ives.
This story first appeared in the September 28, 2010 issue of WWD. Subscribe Today.
On Monday, the multibillion-dollar Anglo-Dutch firm that owns brands including Dove, Pond’s and Sunsilk said the purchase would make Unilever the world’s leading hair conditioning company, the second largest in shampoo and the third biggest in styling.
“Personal care is a strategic category for Unilever, and growing rapidly,” said Paul Polman, Unilever’s chief executive officer. “Ten years ago, it represented 20 percent of our turnover. Strong organic growth has driven it to reach over 30 percent.”
He added that organic growth was the cornerstone of the company’s ambition to double in size. “Bolt-on acquisitions such as Alberto-Culver supplement organic growth and add powerful new brands to our portfolio,” he said.
Analysts had mixed reactions to the deal.
“It looks all around like a very, very good deal that fits the bill for Unilever on every level,” said Jeremy Batstone-Carr, head of research at London stockbrokers Charles Stanley.
In a telephone interview, he said Unilever did not pay the full price — some U.S. industry analysts had expected the price to be in excess of $4 billion. He added there would be “significant potential savings” as the Alberto-Culver brands are integrated into the larger group.
Unilever said it will offer $37.50 per share for Alberto-Culver, a 19 percent premium to its closing price in New York on Friday. Unilever’s shares on the NYSE rose 19.6 percent on Monday to close at $37.64.
The deal is in line with Unilever’s aggressive acquisitions strategy: The company has set aside 1 billion to 2 billion euros, or $1.35 billion to $2.7 billion, annually in funds for bolt-on acquisitions.
Last September, it acquired the personal care division of Sara Lee Corp., although the deal has yet to clear regulatory hurdles. If approved, the 1.28 billion euro, or $1.73 billion, acquisition deal will add Sanex, Radox and Brylcreem to Unilever’s lineup of personal care brands.
In 2009, Unilever’s personal care division had estimated sales of $15.35 billion, up 4.1 percent from the previous year.
Personal care is outperforming every other category at Unilever and is also part of Polman’s background: He spent a substantial part of his 26-year career at Procter & Gamble Co. overseeing personal care products.
Batstone-Carr added this latest purchase would “ramp up Unilever’s presence in North America. Polman is absolutely going to go head-to-head with P&G in that market,” he said.
Alberto-Culver has operations in nine countries including the U.S., Canada, Argentina, Mexico and Australasia. The company has been listed on the New York Stock Exchange since 1965, although its founding Lavin family is a major shareholder. It had sales of $1.6 billion in the fiscal year ended June 30.
Other analysts were not as enthusiastic about the deal, pointing to the downsides for Unilever.
“Jim Marino [Alberto-Culver’s president and ceo] has done good things with TRESemmé by exploiting its VFM salon-type positioning — and to a lesser extent with Nexxus,” said Colin Hession, a U.K.-based cosmetics and toiletries consultant.
“But the company is still slugging it out in the center of the mass market in the U.S., without being able to get much of a premium for VO5 or St. Ives — rather like Unilever’s Suave. Difficult to see many upsides, except perhaps as low-priced flankers to protect Dove,” he said.
Considered Alberto-Culver’s brightest star, TRESemmé is one of the few hair care brands that has invigorated an otherwise flat category by positioning itself as the affordable, professional hair care brand targeting the fashionable twentysomething consumer. Its marketing initiatives have set a standard, too, be it with marketing integrations, four seasons of “Project Runway” and the sole hair sponsor at Mercedes Benz Fashion Week. Symphony/IRI data shows that TRESemmé hair sprays are far and away the top selling brand in the segment with a 11.9 percent dollar share; Alberto-Culver ranks second in the hair spray category second only to Procter & Gamble with a 19.3 percent dollar share. Overall, TRESemmé is number four in sales in hair care with more than $100 million, according to Jamie Schwab, marketing manager for the brand.
According to Euromonitor International, the deal will increase Unilever’s global market share of the beauty and personal care industry from 6.8 percent to 7.2 percent. In total, 75 percent of Alberto-Culver’s personal care sales are generated from hair care and of these, more than 60 percent come through the U.S., according to Euromonitor. The total U.S. hair care market in 2009 declined by almost 4 percent; however, with the help of TRESemmé, Alberto-Culver managed to buck this trend, increasing its overall hair care share from 6.0 percent in 2008 to 6.3 percent in 2009, said Euromonitor. After incorporating Alberto-Culver, Unilever’s share of the U.S. hair care market will increase from 7 percent to more than 13 percent, Euromonitor estimated, and will remain a distant third with L’Oréal and Procter & Gamble holding 25.5 percent and 23.7 percent, respectively.
Unilever said that it planned to take Alberto-Culver’s brands to a “new level” in existing markets and extend their presence to emerging markets.
It added that Nexxus and TRESemmé would bulk up Unilever’s U.S. portfolio, while the VO5, TRESemmé and Simple brands would enable Unilever’s U.K. business to cover more price points across categories.
The deal, if consummated, will add to a growing list of cross-border transactions that have energized and come to dominate recent M&A activity in and out of the beauty and fashion worlds. Mergermarket reported Monday that such transactions have accounted for more than half — 50.4 percent — of the $463.91 billion in M&A value so far in the third quarter of the calendar year, up from 28.9 percent of the $321.3 billion changing hands in the entire third quarter of last year. The percentage of deals involving companies in two different countries rose far more modestly, to 34 percent from 32 percent, indicating that the bigger transactions have tended to be the ones involving firms with different national origins.
The Mergermarket data doesn’t include the Unilever deal.