Procter & Gamble increases stake in global hair care
By John Nolan Associated Press Writer
CINCINNATI (AP) – The Procter & Gamble Co.’s $5.8 billion deal for Germany’s Wella AG substantially increases P&G’s worldwide clout in the lucrative hair care market, which the company has targeted as a key growth category.
Coupled with its $4.9 billion purchase of Clairol in 2001, the deal extends P&G’s market presence from shampoos and conditioners to hair coloring products and supplies for professional hair care salons in Europe and Latin America.
The maker of Crest toothpaste, Pampers diapers and Pringles snack chips said Tuesday it would pay 3.4 billion euros ($3.6 billion) in cash to the family shareholders in Wella for 77.6 percent of the voting shares, ending weeks of speculation about a takeover.
Cincinnati-based P&G also offered to buy out other Wella stockholders, bringing the total share purchase price to 5.4 billion euros ($5.8 billion).
P&G also would assume Wella’s debt of 1.1 billion euros ($1.2 billion).
Professional salon hair care sales are $10 billion a year market worldwide. Wella estimates that it has a 22 percent global share, No. 2 behind L’Oreal, which remains P&G’s biggest competitor. Overall, retail hair care is a $34 billion industry worldwide.
The entry that Wella gives P&G into the professional hair care market is potentially as big as the jump-start it got into the retail hair coloring market by buying Clairol, said Joseph Altobello, an analyst with CIBC World Markets Corp. The acquisition of Clairol from Bristol-Myers Squibb had been the company’s largest ever.
“The key here is really the professional hair care market,” he said.
Chief executive A.G. Lafley has already gained the trust of investors by building up P&G’s stock price since taking over during the company’s 2000 slump, Altobello said. And P&G has already demonstrated – with its purchases of Clairol and the Iams pet food and Tampax tampon brands – its ability to fit newly acquired products into its distribution network.
Lafley said Wella’s strengths in hair salon products and in Europe would be a good match with P&G’s strengths in retail sales and in North America. The Cincinnati-based consumer products giant already owns the Clairol, Pantene and Head & Shoulders hair care brands.
Lafley said Wella would bring an additional $3.6 billion in annual sales. P&G had $40.2 billion in sales in fiscal 2002.
P&G will leave intact Wella’s professional hair care business because it is an area that P&G doesn’t serve now, said Bruce Byrnes, vice chairman of P&G and president of the company’s global beauty, feminine care and global health care businesses.
Byrnes said, however, that Wella’s work force could be cut in areas that duplicate current P&G operations, including retail sales of hair coloring products and perfumes.
He said P&G is not ready to say how many jobs it would cut from Wella, which has nearly 18,000 employees worldwide. Most of the workers are in Europe, particularly in Germany.
P&G shares rose $1.12 to close at $86.62 in trading on the New York Stock Exchange.
Shares in Wella surged in recent weeks on speculation over a possible takeover and reports that the four families who control the majority of Wella’s ordinary shares were ready to sell.
Last week, Henkel, which makes Persil washing powder and Loctite glue, said it had taken a 6.9 percent stake in Wella.
Along with P&G and Henkel, Unilever and L’Oreal had also been named as potential suitors for Wella.
P&G said it would pay 92.25 euros ($98.70) for each Wella common share, and 61.50 euros ($65.80) for each preferred share. Preferred shareholders might be offered P&G shares instead of cash, the company said.
Wella’s common shares rose 19.8 percent to close at 90.45 euros ($96.02) while its preferred shares rose 3.5 percent to 63.50 euros ($67.41) on the Frankfurt exchange.
The deal is subject to antitrust scrutiny and regulatory approval.
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On the Net:
http://www.pg.com
http://www.wella.com
AP-ES-03-18-03 1614EST