(Corrects to show purchase is largest since acquisition of Bestfoods in seventh paragraph. Story originally ran Sept. 25)

Sept. 25 (Bloomberg) -- Unilever, the maker of Dove soap, agreed to buy Sara Lee Corp.’s personal-care and European detergent unit for 1.28 billion euros ($1.88 billion), gaining Sanex shower gel in its biggest purchase in nine years. Sara Lee gained 6.4 percent in New York trading.

Unilever, based in London and Rotterdam, will pay cash for the business, which makes Duschdas and Radox soap and had sales of more than 750 million euros for the year ending June 2009, according to a statement today. Sara Lee, which has been shedding units to focus on coffee and food, said the proceeds would help it buy back as much as $1 billion in stock.

The purchase is the largest by Chief Executive Officer Paul Polman, 53, since he took the reins at Unilever at the start of the year. He focused the company on winning back cash-strapped shoppers and boosting sales volumes by cutting prices, and was rewarded as the company unexpectedly posted volume growth in western Europe in the second quarter.

“We’re not convinced that this is the greatest collection of assets, but another acquisition shows Unilever is still moving from the back foot -- cost cutting, disposals -- to the front foot -- volume growth, acquisitions,” Credit Suisse analysts said in an e-mailed note.

Proceeds from the sale will give Sara Lee greater flexibility to market its brands and consider acquisitions, Chairman and Chief Executive Officer Brenda Barnes, 55, said today in a telephone interview. The cash also made it possible to boost the company’s share repurchase plan, she said.

‘Big Buyback’

“This is a pretty extraordinary statement,” Barnes said. “This is a one-time, big buyback.” There is no deadline for the buyback, she said.

The deal is Unilever’s biggest acquisition since buying Bestfoods in 2000 for $24 billion. Unilever’s brands besides food include Vaseline and Axe deodorants.

“This transaction builds on our portfolio in western Europe and also in Asia,” Polman said in the statement. “The Sara Lee brands enjoy strong consumer recognition, offer significant growth potential and are an excellent fit with Unilever’s existing business.”

Unilever dropped 9 cents to 19.21 euros in Amsterdam. The shares have added 11 percent this year. Sara Lee, based in Downers Grove, Illinois, rose 67 cents to $11.21 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 15 percent this year.

Valuation

Unilever’s offer price values Sara Lee’s body-care operations, which also include Zwitsal baby shampoo and Zendium toothpaste, at 1.7 times annual revenue. In 2006, L’Oreal SA bought Body Shop International Plc for 1.5 times its sales.

Sara Lee’s Barnes said she is “very happy” with the price.

“I don’t think they’ve paid too much,” said Henk Grootveld, a fund manager at Robeco Asset Management in Rotterdam, which oversees 115 billion euros, including Unilever shares. “The acquisition is manageable and Unilever would get very dominant in some categories in western Europe. If they can take over this whole portfolio without any divestments, it would not be nice news for Beiersdorf.”

Hamburg-based Beiersdorf AG in August reported a second- quarter sales drop, after European retailers stocked less of its Nivea skin cream. Four months earlier, Beiersdorf said it aims to increase market share this year in beauty care products, the source of 85 percent of revenue, and targets a global market share of 5.5 percent in 2010, up from between 4.8 percent and 4.9 percent in 2008.

‘Strategic Fit’

Unilever considers as much as 85 percent of the Sara Lee assets it’s buying to be “a strategic fit,” said company spokeswoman Fleur van Bruggen. She said it is “too early” to comment on plans for the remainder.

The transaction needs regulatory approval, and the companies will consult with European employee works councils, Unilever said today. It is expected to close in 2010, Sara Lee said in a statement.

“This will not close for a while,” Barnes said. “In the meantime we are committed to a very healthy business in household and body care.”

Sara Lee has gotten interest from potential bidders for the remainder of the household and body care unit, totaling about 45 percent of operating income, Barnes said. It includes Kiwi shoe polish, air-care products, insecticides and non-European cleaning brands, according to Sara Lee’s statement.

‘Feel Good’

“We feel good about where we are in the process,” Barnes said. “We have had lots of interest.”

“The positioning of the Sara Lee brand is more mid- market and below the other Unilever brands,” said Fernand de Boer, an analyst at Petercam in Amsterdam. “This fits in Paul Polman’s strategy to play the entire price spectrum of the portfolio in order to be better able to anticipate on changes in the economic conditions.”

To entice cash-strapped European consumers, Polman has also increased ad spending, boosted promotions and accelerated new product introductions since he took over as CEO.

Unilever is taking “quicker actions where we’re feeling that our brands are out-positioned or at a disadvantage, where we’re losing share,” Polman said in May. He said he’s fighting an “inherited assumption that the company will not grow.”

“This is a show of confidence” by Polman, said Julian Hardwick, a Royal Bank of Scotland analyst in London who recommends investors hold Unilever stock. “It fits very well with their personal-care categories.”

Barnes, a former PepsiCo Inc. executive who took over as CEO in 2005, has sold off clothing lines in the U.S. and Europe, as well as a U.S. coffee unit.

To contact the reporters on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net; Jeroen Molenaar in Amsterdam jmolenaar1@bloomberg.net

Last Updated: September 27, 2009 13:33 EDT