THE WAR IS ON FOR MAYBELLINE
Byline: Faye Brookman
NEW YORK — The intended acquisition of Maybelline by L’Oreal, thought to be all but a done deal, now looks like it could launch a bidding war.
The scenario took a new turn this week when Maybelline received an unsolicited letter from the German firm Joh. H. Benckiser GmbH, offering to buy the company for $37 a share. Last month, L’Oreal had reached an agreement to purchase Maybelline from Wasserstein Perella & Co., which owns 30 percent of the firm, for $36.75 a share in cash, or $508 million.
On Thursday, L’Oreal upped the ante by increasing its price to $41 per share, with the offer still scheduled to expire on Feb. 1.
Benckiser has said it would increase its bid to an amount “materially higher” than $37 if certain conditions are met. Most of Benckiser’s conditions are designed to avoid a bidding war with L’Oreal.
According to a spokeswoman at Benckiser, “The company is aware of L’Oreal’s increased bid and we are reviewing the situation.”
Industry consultant John Horvitz said he thought the price could rise: “Benckiser has the money around for this kind of deal.”
“It looks like a bidding war,” added Douglas Lane, an analyst at Merrill Lynch. He said with $1 billion in cash and financing and the market value of Maybelline at about $700 million, “Benckiser has a little room to play with.” Diana Temple, an analyst at Salomon Brothers, said she is surprised that Benckiser did not make a higher initial offer if it was really interested in acquiring Maybelline. “Any bid that Benckiser makes, L’Oreal should be able to match,” she noted. For their part, mass market retailers hope L’Oreal will be able to reach deeper into its pockets and come away with the spoils.
“Maybelline is a better fit with L’Oreal because they have more of the same strengths in color cosmetics,” said Patricia Boster, cosmetic category manager for Fruth Pharmacy in Point Pleasant, W. Va.
The fight for Maybelline reflects the importance of the makeup manufacturer in the mass market arena. It’s particularly key for L’Oreal, which could expand its portfolio into more moderately priced beauty goods. “With L’Oreal’s ‘I’m worth it’ positioning, it can’t chase a lower positioning. Maybelline gives it a two-pronged attack,” explained industry analyst Allan Mottus.
On the other hand, adding Maybelline to the Benckiser stable, which includes the Coty fragrances and cosmetics brands, would give the Wiesbaden, Germany-based firm instant entry into the mass cosmetics business.
“It is a decision for the future. Benckiser has to decide whether it can be a world-class competitor without the purchase of something like Maybelline. It isn’t big enough in class or mass to be a big competitor,” said Mottus. Coty, industry sources said, has annual color cosmetics sales of about $25 million out of a volume of $450 million — a figure too small to make it a viable force in the makeup category. “The addition of Maybelline could give it critical mass,” said Horvitz.
No matter how the chips fall, either combination with Maybelline will create a new power. The Maybelline-L’Oreal entity would rank second in the mass market beauty lineup, behind Procter & Gamble’s sales of $678 million, according to figures from Information Resources Inc. for the 52 weeks ended Aug. 27, 1995. In that period, Maybelline and L’Oreal combined for sales of $648 million in lip, eye, face and nail products. Taking just Coty’s cosmetics business and putting it with Maybelline would create a $415 million firm. Most retailers seem to be rooting for a Maybelline-L’Oreal pairing. “It is harder to go from fragrance and health and beauty care to cosmetics. L’Oreal is already strong in cosmetics,” said Penny Wade, category manager for Harco Drug Inc. in Tuscaloosa, Ala. Lorraine Coyle, category manager for Eckerd Drug Corp. in Clearwater, Fla., said the companies augment each other. “Maybelline is good at understanding the customer, right down to the shelf level. L’Oreal has the marketing expertise.”
Myra Wander, an owner of Maple Drug Stores in Southfield, Mich., voiced a vote for L’Oreal. “They are the best mass market line out there and would be good for Maybelline,” she said.
Retailers and industry experts think the duo of Maybelline and L’Oreal would be a stronger competitor against Procter & Gamble. “It represents the creation of a powerful group of brands to compete directly with Procter and, to a lesser degree, Unilever in toiletries,” said Horvitz. Although buyers laud Coty for its impressive fragrance marketing, they said it hasn’t been as effective in the cosmetics category, where it sells products such as Airspun Loose and Pressed Powder and a new line called Chronologix. “The cosmetics just don’t sell that well,” said Boster of Fruth. Added another retailer, “I just put in a display of new merchandise to see if it would sell. It didn’t.” Joan Zukor, a buyer with the Northwest Drug Emporium group, also voiced trepidation over a Maybelline/Coty match. “We haven’t been happy with the way some things have been handled, such as returns with fragrances, and we’d hate to see the same practices in a area as important as color cosmetics,” she said.
Buyers expressed even greater concern over losing their Maybelline sales representatives — no matter which firm wins the battle. “We have a terrific representative and our Maybelline business has been great. L’Oreal has said it will keep the sales force intact,” said Boster.
One financial analyst agreed with retailers that there are more synergies between L’Oreal and Maybelline.
“We believe the combination of L’Oreal and Maybelline would be competitively stronger because of L’Oreal’s technology in skin care and hair care, which could be used to strengthen Maybelline products,” said Temple of Salomon Bros. Temple said she views the potential merger as a prime vehicle for the introduction of Maybelline into more overseas markets. Currently, Maybelline’s international sales are $50 million out of a total $369 million. Marie-Helene LAopold, an analyst for Paribas Capital Markets in Paris, noted that Benckiser “is a group that markets many fragrances which are very seasonal. The acquisition of Maybelline would decrease the seasonality of its U.S. revenue. It could strike a balance.”
However, she added, “L’Oreal has more financial resources, and could top Benckiser’s offer. They’ve got almost no debt and are cash rich.”
Even some competitors hope to see Maybelline and L’Oreal team up. “It is a better fit,” said Thomas V. Bonoma, chairman of Renaissance Cosmetics. “I’ve heard there could be other firms willing to make sure there are no conflicts with the government,” he added, referring to the Department of Justice’s request for additional information concerning potential antitrust problems. Bonoma said other manufacturers potentially could purchase lines if the government deemed an acquisition questionable under antitrust laws. He would not say whether Renaissance sought to purchase any part of Maybelline. Maybelline stock closed Thursday at 42 3/8, up 2 7/8 on the New York Stock Exchange.
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