The Body Shop

Natura has taken the next step in its acquisition of The Body Shop.

The Brazilian beauty company signed a contract to move forward with the deal, L’Oréal said Tuesday. The companies announced they were in exclusive negotiations on June 9. The transaction is still subject to antitrust clearance in Brazil and the U.S., and is expected to close this year.

Natura’s offer for The Body Shop values the business at 1 billion euros, or about $1.12 billion. The brand adds another natural-focused line to Natura’s portfolio, which includes Aesop and Natura Brasil. It also further diversifies Natura’s geographic footprint — The Body Shop has more than 3,000 points of sale in 60 countries. The business posted net sales of 921 million euros, or $1.02 billion, for 2016. Natura is taking on debt for the deal, but plans to be back at a ratio of 1.3 times debt to earnings before interest, taxes, depreciation and amortization in four years. The business is also expecting all three better-for-you personal-care businesses to have a significant amount of synergies.

After The Body Shop acquisition closes, about 50 percent of Natura’s sales are expected to come from outside of Brazil, the company said. About 25 percent of the markets are where The Body Shop will require turnarounds, Natura executives have noted. (The Body Shop was said to have dragged down margins and growth at L’Oréal, and underperformed against competitors like Bath and Body Works, according to analysts.)

Natura has singled out China as a potential area of expansion for all three businesses — highlighting the market as one where the brands could expand, and that Latin America also presents an opportunity for growth.

“We do have a plan at the country level, at the store level,” said Robert Chatwin, vice president of Natura earlier in June. “There is no country with too many stores. We do believe that the Body Shop could be in 150 cities, it’s almost at 100.…The remaining 50, 42 are in China — we have the animal testing hurdle in China, both Aesop and Natura…China’s a potential market for all three brands.”

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