PARIS — L’Oréal continues to bolster its presence in China through the acquisition of the mass-market skin care brand Mininurse.
The French beauty giant said Thursday that it has signed an agreement of intent to buy Mininurse, which was launched in China in 1992, and its manufacturing facility in Yichang, Hubei province.
Terms of the deal were not disclosed, but analysts estimate L’Oréal paid between $48.6 million at current exchange rates, or 40 million euros, and $145.8 million, or 120 million euros, for the firm.
Mininurse products, which are distributed in some 280,000 outlets China-wide, is expected to generate sales of about $48.6 million at current exchange rates, or 40 million euros, this year, said L’Oréal in a statement. The skin care brand ranks third in the country’s mass skin care market, with a 5 percent share. Procter & Gamble ranks first, with a 17 percent share, followed by Dobao, with 7 percent, according to an HSBC research note.
L’Oréal, which has been operational in China since 1997, registered sales of $137.4 million, or 113 million euros, last year. The firm posted 66 percent growth there in local currency in the first nine months of 2003, “broadly in line with the 2002 figure,” the firm said.
L’Oréal says it has several leading positions in China, including L’Oréal Paris in premium colorants, Maybelline in makeup, Vichy in pharmacy distribution and Lancôme in the selective channel.
“This acquisition is an outstanding opportunity to speed up our growth in the Chinese market,” explained L’Oréal chairman and chief executive officer Lindsay Owen-Jones in the statement. “It is a major step forward in L’Oréal’s development in a market which is strategically important for the group.”
Added Paolo Gasparrini, L’Oréal China’s general manager, in the statement: “Aimed at young women with a natural style, Mininurse complements our brand portfolio perfectly, and enables us to move more quickly into the Chinese consumer skin care market.”
Analysts applaud L’Oréal’s Mininurse acquisition. “I think it makes a lot of sense for L’Oréal to grow in China by making relatively small acquisitions of local brands and then gradually improving their quality and appeal, before co-branding them under their international brands along the same lines of what they have done in Latin America a few years ago,” said Eva Quiroga, an analyst at UBS. “I believe that China will become a very important market for the group, given the huge population on the one hand and the rapid increase in GDP per capita in the cities on the other — all the more so because the rural population gradually migrates to the cities.“One way I look at this is to say that if L’Oréal managed to achieve per-capita sales in China equaling those in Taiwan, this would create an additional 2.4 billion euros [$3 billion] in sales,” she continued.
“Overall, this acquisition is good news for the group, since one of the themes which has weighed on the share price performance since the beginning of the year is the group’s ability to use its cash flow to make acquisitions in a sector where sizable targets are scarce and potential acquirers numerous,” said HSBC in its note. “We reiterate our buy rating and our 68 euros [$82.45] target price.”
L’Oréal has been focusing increasingly on Asia. The historically nonacquisitive firm’s announcement regarding Mininurse comes just weeks after it unveiled plans to become the majority shareholder in Japan’s Shu Uemura next year.
The Mininurse deal is subject to approval of the Chinese authorities, but the company’s business is expected to be consolidated by L’Oréal during the first half of 2004.
L’Oréal stock closed up 1.06 percent at a unit price of $75.50, or 62.20 euros, on the Paris stock exchange Thursday.
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