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Unilever to Purchase Alberto Culver for $3.7 Billion

Unilever, the maker of Dove soap, agreed to buy Alberto Culver Co. for $3.7 billion in cash to add VO5, Nexxus and TRESemme hair-care products in the company’s biggest purchase in a decade.

Unilever will pay $37.50 a share, Alberto Culver, based in Melrose Park, Illinois, said today. That’s about 19 percent more than the Sept. 24 closing price. The purchase will add to earnings per share in its first year, Unilever said separately. The companies agreed to a $125 million breakup fee if the deal is terminated, said Paul Matthews, a spokesman for Unilever.

Chief Executive Officer Paul Polman is expanding in home and personal-care products as part of a plan to double total sales. Unilever spent much of the decade shedding brands following the 2000 purchase of Bestfoods. Polman, who joined in 2009 after a career at Nestle SA and Procter & Gamble Co., agreed to buy Sara Lee Corp.’s body-care operations last year.

“It’s a sensible deal, has good strategic rationale and is positive, but it’s not transformational -- it’s a bolt-on deal like the Sara Lee one,” said Martin Deboo, an analyst at Investec Securities in London.

Unilever rose less than 1 percent to 21.98 euros a share in Amsterdam. Alberto Culver gained 20 percent to $37.64 as of 4 p.m. in New York Stock Exchange composite trading.

‘Massive Brands’

Alberto Culver had sales of $1.6 billion and earnings before interest, taxes, depreciation and amortization of $250 million for the 12-month period ended June 30, according to Unilever. The Rotterdam- and London-based company offered about 14.75 times Alberto Culver’s earnings before interest, taxes, depreciation and amortization, Bloomberg data show, and is paying 2.31 times revenue on that basis. Unilever offered to pay 1.7 times annual revenue for the Sara Lee business.

“Growth is significantly higher for this company compared with Unilever, but it’s a lot of money,” said Corne van Zeijl, a senior fund manager at SNS Asset Management in the Dutch town of Den Bosch. “You’re only buying a limited amount of emerging market exposure.”

Alberto Culver’s third-quarter sales rose 11 percent, excluding the impact of currency fluctuations and acquisitions.

Hot Oil Treatment

The company’s origins date to the early 1950s, when a chemist known as Alberto created a conditioner to help Los Angeles movie stars protect their hair from harsh studio lights, according to Hoover’s Inc. He called the product VO5 after its five vital oils.

Photographer: Jock Fistick/Bloomberg

Unilever Chief Executive Officer Paul Polman, at the helm for almost two years, has set a goal of doubling the company’s sales. Close

Unilever Chief Executive Officer Paul Polman, at the helm for almost two years, has set... Read More

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Photographer: Jock Fistick/Bloomberg

Unilever Chief Executive Officer Paul Polman, at the helm for almost two years, has set a goal of doubling the company’s sales.

In 1955, the company was sold to Leonard and Bernice Lavin, who moved it to Chicago. The couple began advertising nationally, pushing VO5 to No. 1 in its category. The Lavins added TRESemme hair color in 1959 and took the company public in 1961. Subsequent acquisitions added SugarTwin sugar substitute and Sally Beauty Supply stores, which was spun off in 2006. The company’s brands include Molly McButter flavor sprinkles and Just For Me ethnic hair-care products.

Unilever is aiming to expand outside of western Europe, the only region where its sales fell in the first half, amid sluggish consumer spending and increasing competition from rivals including Procter & Gamble and Nestle. Alberto Culver made about 64 percent of its sales in the U.S. in the year ended September 2009, according to Bloomberg data. The acquisition will enable Unilever to extend the Alberto Culver brand’s presence to “new emerging markets,” Unilever said.

Market Leader

“It’s what they promised,” van Zeijl said. “They say they want to expand in emerging markets and it fits well.”

The purchase makes Unilever the biggest maker of hair conditioning products in the world, the second-largest in shampoo and the No. 3 in styling, the company said.

Unilever entered the professional hair-product market in 2009 with the purchase of the TIGI salon brands from the creators of Toni & Guy for $411.5 million. The Alberto Culver acquisition includes Simple, a skin-care company it bought in 2009 for about 240 million pounds ($379 million).

Personal care now represents 30 percent of Unilever’s sales compared with 20 percent a decade ago, Polman said. The unit had underlying sales growth of 7.8 percent in the second quarter, Unilever said in August, more than twice the pace of the group.

‘Lucrative Industry’

In August, Polman said that he foresaw about 80 percent of so-called organic growth coming from emerging markets, driven by health and personal care. The global personal care market is forecast to grow to $561 billion by 2014, and was valued at $467.3 billion in 2009, according to Datamonitor.

“It’s therefore easy to see why companies are targeting this lucrative industry as an opportunity for growth,” Mark Whalley, an analyst at Datamonitor, said today in a note.

Polman has earmarked as much as 2 billion euros ($2.69 billion) a year for add-on acquisitions as part of his growth strategy for the company, whilst continuing to divest units. The maker of Knorr soups on Sept. 24 agreed to sell its consumer tomato products business in Brazil to Cargill Inc. for about 260 million euros . The company sold its Italian frozen-foods unit in July for about 805 million euros.

The takeover will be funded from cash resources, Unilever’s Matthews said. The company had cash and cash equivalents of 2.8 billion euros at the end of the first half.

Unilever was advised by Morgan Stanley and UBS AG, Matthews said. BDT & Co., the Chicago-based investment and advisory firm founded by former Goldman Sachs Group Inc. banker Byron Trott, was Alberto Culver’s financial adviser, while Credit Suisse Group AG provided a fairness opinion, the company said.

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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