L’OREAL TO PURCHASE MAYBELLINE IN MOVE TO BUILD U.S. SHARE
Byline: Pete Born
NEW YORK — L’Oreal SA signed a deal over the weekend to acquire Maybelline Inc., making the Paris-based beauty giant, with one bold stroke, a leading force in the American mass market.
The agreement, hammered out at 3 a.m. Saturday morning by executives at L’Oreal’s Cosmair subsidiary here, calls for launching a cash tender offer this week of $36.75 per share of Maybelline for a total of $508 million. Cosmair executives expect the acquisition to be completed by March 1. Maybelline shares closed Friday on the New York Stock Exchange at 31, up 3/4, setting a new 52-week high, driven by market speculation on Thursday and Friday that Maybelline was a takeover target.
That purchase includes the 3.8 million shares — a 29 percent stake — of Maybelline owned by Wasserstein Perella & Co., Inc., which bought the Memphis-based cosmetics company in 1990 from Schering-Plough Corp. for $300 million. The investors then took Maybelline public in late 1994.
L’Oreal will also assume Maybelline’s debt of about $150 million, according to a Cosmair spokeswoman.
Like L’Oreal’s 1993 acquisition of Redken, a California-based professional hair care manufacturer, Maybelline will become a part of Cosmair. But Guy Peyrelongue, Cosmair president and chief executive officer, said he intends to preserve the cosmetics firm as a separate entity reporting to him, with its own manufacturing, marketing and sales force.
“We hope to cooperate with Bob Hiatt,” Peyrelongue said, referring to Robert Hiatt, the president of Maybelline.
Hiatt will report to Peyrelongue.
The spokeswoman said there are no plans to move the headquarters from Memphis.
Peyrelongue said the Maybelline acquisition is part of a worldwide strategy, conceived by L’Oreal chairman Lindsay Owen-Jones, to operate at two levels of price point in the global mass market. The company hopes to achieve a strong presence not only in the higher-priced, more fashion-oriented upper reaches of the mass market — where L’Oreal traditionally has operated with Plenitude skin care and L’Oreal brand color cosmetics plus, in hair coloring, Preference — but also in the more price-driven moderate end of the market, where Maybelline has a strong position.
L’Oreal’s desire to strengthen its global mass market position was seen in October with its acquisition of the German-based Jade Kosmetik GmbH from the Hoechst group of Frankfurt. The purchase of Jade — a manufacturer of skin care, makeup and fragrances in the mass market — is intended to boost the company’s presence in the key German market, pushing its share in makeup there from 4 percent to 21 percent. Jade also does business in Holland and Scandinavia.
In Europe, L’Oreal also has a standing in the broader mass market with the Laboratories Garnier hair coloring and care line and the Gemey makeup line.
Cosmair does not break out sales, but industry sources estimate the L’Oreal brand does more than $250 million in wholesale volume in the U.S. and Canada. Plenitude does another $80 million.
Maybelline did $351.7 million in worldwide sales in 1994, with 87 percent, or $305.9 million, done in the U.S. Operating profits totaled $35.3 million in that period.
For the first nine months of 1995, Maybelline’s total sales were $286.5 million — a 6 percent increase — with operating profits of $34.5 million, up 14 percent.
Not only will Maybelline give L’Oreal a solid footing in a broad segment of the mass market, but it will give some of the company’s other brands a gateway to the U.S. Peyrelongue noted that Maybelline could help L’Oreal launch Synergie, a mass market skin care line now marketed in Europe under Laboratories Garnier, in the United States.
Peyrelongue added that there could be other opportunities as well in skin care in the value segment.
Maybelline will also give Cosmair access to new customers, such as African-Americans, through Maybelline’s Shades of You makeup line.
“We think there is an opportunity with Shades of You,” Peyrelongue said, noting that Maybelline has been a pioneer in the ethnic market. According to industry estimates, Maybelline’s $16 million volume in the mass ethnic market puts the brand in second place, behind Procter & Gamble’s Cover Girl.
The acquisition also has some meaning geographically. Although only 13 percent of Maybelline’s sales was done overseas in 1994, the brand is distributed in 40 countries, with an emphasis on Latin America and the Pacific Rim, two regions targeted by L’Oreal, whose worldwide sales totaled more than $10 billion in 1994. In January, Maybelline is slated to open a factory near Shanghai.
In April, L’Oreal gained control of its business in the key Japanese market, with the announcement of a joint venture with its Japanese agent, Kose Corp. L’Oreal became the majority owner, with a 60 percent stake.
Cosmetics industry consultant Allan Mottus noted that the Maybelline acquisition will boost L’Oreal past Revlon in the American mass market share race, and put it in second place, behind Procter & Gamble with its Cover Girl and Max Factor brands.
“It’s Procter & Gamble and L’Oreal in a worldwide dance of market share,” Mottus said, noting that in some markets P&G’s Oil of Olay still reigns supreme, while in others, L’Oreal is attacking with Plenitude.
Mottus added that L’Oreal has taken the lead in diversifying its marketing. “They are market segmenting better than anyone else,” he said.
Reached at his home in Memphis, Hiatt says his plans are to stay at the helm of Maybelline, especially since “L’Oreal has indicated that it wants Maybelline to continue operating as a freestanding entity,” Hiatt said. “I’ve been on the record as saying that at some point further along, I want to find a successor. This may accelerate that process. But for the immediate future, I’ve got a job to do.”