ANALYSTS SEE BIG CHANGES IN THE WIND

Byline: Catherine Curan

NEW YORK — While Jane cosmetics is a small company, prestige beauty giant Estee Lauder’s acquisition of a mass market brand signals a big shift in strategy, Wall Street analysts said Thursday.
Analysts liked the deal, which they said includes a strong management team and a hot teenage brand with good growth potential. Shares of Lauder closed at 46 3/16, down 1/4, Thursday on the New York Stock Exchange.
Peter Schaeffer, SBC Warburg Dillon Read, said Jane’s small retail sales will have minimal impact on the income statement of Lauder, a $3.4 billion company. But Schaeffer noted that the acquisition “is a signal from Estee Lauder that they are becoming players in all markets of beauty, not just prestige.” Schaeffer said the purchase price could be as little as $18 million but might range up to $30 million.
Michael Grant, at J.P. Morgan Securities, agreed that the deal has long-term implications for Lauder’s growth strategy.
“The real interesting thing is now they are straddling that mass/class divide, and one has to wonder if Lauder will push further into the mass channel,” Grant said.
He noted Lauder’s large size has brought important returns in the prestige market, which it will not have in mass unless it develops more business in that channel.
Grant said benefits of being in both mass and prestige include extending a product’s life cycle by introducing it in prestige and filtering it down through mass, and diversification to protect against softness in either market.
“Longer term, we’re likely to see more companies adopt a dual position,” he said.
Amy Low, analyst at Goldman Sachs, said the deal fits very well with Lauder’s acquisition criteria of small niche brands that fill an area Lauder doesn’t serve. She added that getting into the mass channel can be another substantial growth opportunity for Lauder.

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