NEW YORK — Regis Corp. would became a salon superpower in a $2.6 billion deal announced Tuesday to merge with Alberto-Culver’s retail and beauty distribution businesses, Sally Beauty Co. and Beauty Systems Group, which dominate professional hair care in the U.S.
Alberto-Culver plans to spin off Sally’s 2,419 stores and Beauty Systems Group’s 822 outlets and 1,244-employee sales force into Regis’ $4.5 billion salon business, operating under the Regis, Supercuts, Vidal Sassoon and Trade Secret banners.
The merger, which is subject to shareholder and regulatory approval, is expected to be complete by May or June. It awards the shareholders of Melrose Park, Ill.-based Alberto-Culver 0.6 shares of Regis Corp. for each Alberto share owned. A $3 special cash dividend is also planned by the mass beauty marketer as Sally Beauty looks to take a $400 million loan from parent Alberto-Culver prior to the merger.
Sally Beauty, which generated $2.25 billion for the fiscal year ended Sept. 30, is expected to push Minneapolis-based Regis’ sales to the $5 billion mark in 2007, according to its chairman and chief executive officer, Paul D. Finkelstein, in a conference call Tuesday morning. The sale of the two businesses leaves Alberto-Culver a lean, $1.4 billion consumer products company, with brands such as Alberto VO5, Nexxus and St. Ives.
Also following completion of the deal, Howard B. Bernick, Alberto-Culver’s president and ceo, will retire from his current position and join Regis’ board as non-executive chairman. V. James Marino, current president of Alberto’s consumer products division, will replace Bernick as president and ceo, and Carol Lanvin Bernick will continue as executive chairman of Alberto’s board. Gary Winterhalter will continue as president of Sally Beauty, and Michael H. Renzulli, Sally Beauty’s chairman, will enter into a three-year consulting contract with Regis to oversee the merger.
According to Renzulli, the combination “is a marriage made in heaven. Alberto-Culver shareholders end up with 54.5 percent of the shares of the combined company,” he said, adding that Sally Beauty will remain based in Denton, Tex.
“[Alberto-Culver] has been extremely successful over the years,” Renzulli added. “This gives them pure play and frees them up to do what they want to do on the consumer end. They will be debt-free with a great cash flow.”
It is well known that Sally Beauty stores, which sell professional beauty products to the masses, often competed with Alberto-Culver’s chief retailers, such as Wal-Mart, making the prospect of promoting Sally Beauty stores a touchy matter. The merger with Regis will allow Sally Beauty stores to receive aggressive marketing without creating a conflict for Alberto-Culver.
“Alberto-Culver supplied Wal-Mart and it couldn’t make Sally compete with Wal-Mart. Now it will be aggressively poised to compete,” said Linda Bolton Weiser of Oppenheimer & Co.
Bernick said on the conference call that he had been answering questions for years about a possible alliance between Sally Beauty and a salon business but it wasn’t until his company purchased the professional hair care brand Nexxus last summer that an interest from Regis was piqued.
Weiser said the deal makes Alberto-Culver a leaner company with focus, one that “could be dressing itself up for a sale.” But more pressing is the conflict the deal could present to independent salon owners who currently buy products from BSG’s distribution arm, many of whom consider Regis’ salons the competition.
“They are not going to buy products from someone they regard as their competitor. They are going to go with some independent sales force, like Procter & Gamble and Wella. L’Oréal is not in a good position,” Weiser said, noting that the majority of L’Oréal brands are not sold direct.
Rick Goldberg, a manufacturer of mass hair care products with more than 20 years experience in the professional business, agreed with Weiser’s assessment but also considers BSG’s discontinuation of selling P&G and Wella products as a bright spot for some manufacturers.
“While independent salon owners may think twice before buying from Regis, whom they regard as their competitor, it is likely that L’Oréal will [fill the vacuum created by Wella’s departure from BSG], giving them the opportunity to increase sales,” Goldberg said.
Justin Hott, a managing director at Bear Stearns, said at the end of the day, salon owners just want to turn a profit.
“If you give them the product most cheaply they aren’t going to care. The mom-and-pop salon is different than dealing with a Wal-Mart. There is a different level of sophistication. They might not even know it’s their competitor,” Hott said.