L’OREAL WINS MAYBELLINE BUT IS PAYING $100M MORE
Byline: Jennifer L. Brady
NEW YORK — L’Oreal SA has won the bidding war for Maybelline Inc. — but at a hefty cost.
The Paris-based beauty conglomerate beat out the German Joh. A. Benckiser GmbH in its tug-of-war for the American mass market cosmetics company with a top bid of $44 a share, an increase of $100 million over the $36.75 initial offer L’Oreal hammered out on Dec. 9.
With the end of the bidding contest, Maybelline stock closed at 43 5/8 Monday, down 1 1/4 on the New York Stock Exchange.
On Monday morning, Maybelline had asked bidders to jack up their offers to acquire the Memphis-based Maybelline. Benckiser complied with a $42-a-share bid, but L’Oreal came up with the winning number.
Maybelline said its board has resolved to recommend that shareholders accept the offer.
According to a Benckiser spokeswoman, while the company remains interested in acquiring Maybelline, it is not interested in offering more than $44 a share. She added that Benckiser will continue to follow the proceedings in case the U.S. Department of Justice, which had begun examining the original L’Oreal deal in early December for possible antitrust violations, knocks out the current agreement.
Maybelline added that other than the share price and expiration date, the terms and conditions of the L’Oreal tender offer and merger have not been changed. Due to the increased price, L’Oreal’s tender offer will be extended to midnight New York time on Feb. 2. The bid to buy Maybelline is subject to approval by antitrust regulators.
The purchase includes 3.8 million shares, the 29 percent stake of Maybelline owned by Wasserstein Perella & Co. The Wasserstein firm bought Maybelline in 1990 from Schering-Plough Inc. for $300 million and took it public in late 1994.
In the battle for Maybelline, L’Oreal previously raised its bid to $41 a share in response to an unsolicited counteroffer from Benckiser of $37 a share.
Although the price is high, Wall Street remains enthusiastic about the pending merger.
Heather Hay, analyst at J.P. Morgan Securities, said the deal with L’Oreal makes a lot more sense strategically than with Benckiser, whose Coty subsidiary dominates the mass market fragrance business. Its Lancaster subsidiary markets fragrances, skin care and cosmetics in the department store market.
The deal would place L’Oreal in the number-two spot among mass market cosmetics firms, after Procter & Gamble, pushing Revlon Inc. into third. Maybelline is currently in the number-three slot, and L’Oreal is fourth.
As reported, combined sales of L’OrAal and Maybelline total an estimated $648 million. The P&G cosmetics operations, Cover Girl and Max Factor cosmetic lines, had sales for the year ended August 1995 of $678 million.
For the nine months ended Sept. 30, Maybelline sales, excluding royalties, rose 6 percent to $286.8 million. Operating income was up 14 percent to $34.5 million.
“It is a very complementary merger from a business point of view,” said William Steele, an analyst at Dean Witter Reynolds. He cited the synergies in distribution, as well as manufacturing that will exist between the two companies. The merger presents a good opportunity for L’Oreal to market the strong Maybelline brand overseas.
“It is a lot less risky and cheaper to distribute the Maybelline brand internationally than to start up a new brand, even at $44 a share,” Steele said. “Maybelline really needed to team up with a company that can promote its brands adequately.”
He added that Maybelline needs to back the brands more aggressively, saying, “With deeper pockets, I expect the shares to do better.” For the year through November, Steele calculated, the L’Oreal-Maybelline combined market share was 28 percent, just behind P&G’s 28.5 percent. Revlon’s market share was about 25.6 percent, he estimated.
Analysts agreed that looking at the larger market, there is little concern that the deal will not get regulatory approval. — Fairchild News Service