L’Oreal SA, (OR) the world’s largest cosmetics maker, agreed to buy China’s Magic Holdings International Ltd. (1633) for HK$6.54 billion ($843 million) to expand in a market where sales growth is outpacing that of the company.
L’Oreal will pay HK$6.30 a share in cash for Magic, the companies said yesterday, 25 percent more than the last traded price of HK$5.05. Magic surged as much as 21 percent in Hong Kong trading today, headed for the biggest gain since its listing in September 2010.
The acquisition gives L’Oreal the top-selling facial mask brand in China, where beauty and personal-care product sales will expand 8 percent to $34 billion this year, according to Euromonitor estimates. Paris-based L’Oreal last month posted second-quarter sales growth that missed estimates amid the weakest performance in North America for two years.
“China is still a 1.3 billion population market and personal care is growing,” said Norman Chan, the Hong Kong-based head of investment at Calibre Asset Management Ltd. “The faster growing markets are the low- to mid-end, which the domestic companies would have a better foothold” in than L’Oreal, said Chan, who doesn’t own either company’s shares.
Magic sells MG-branded beauty products such as facial masks with snail essence. The company, which established MG 10 years ago, is the facial-mask industry leader in China with a 26.4 percent share as of 2012, Magic said on its website, citing data from AC Nielsen.
Magic climbed 19 percent to HK$6.01 at the close of trading in Hong Kong, while the city’s Hang Seng Index fell 0.1 percent. The stock has advanced 69 percent this year.
L’Oreal shares rose 0.4 percent to 129.45 euros in Paris, extending this year’s gain to 23 percent.
Magic has 288 distributors in 32 provinces and regions in China, according to its website.
“This should allow L’Oreal to accelerate the growth of its own brands in China through a greater distribution reach,” said Chas Manso de Zuniga, an analyst at Societe Generale SA.
The cosmetics maker is paying 20 times Magic’s 2012 earnings before interest, taxes, depreciation and amortization, Manso de Zuniga estimated.
Net income in the six months ended Dec. 31 rose 21 percent from a year earlier to HK$100 million ($13 million), Magic said. Sales gained 31 percent to HK$821.4 million.
L’Oreal entered China in 1997 and has 3,500 employees in the country. The company’s first-half sales rose 5.4 percent, excluding currency fluctuations, to 11.7 billion euros ($15.6 billion). L’Oreal’s first-half revenue in China climbed 11 percent on a similar basis, the company said in July.
The cosmetics maker plans to pay for the acquisition from internal resources. BNP Paribas SA, L’Oreal’s adviser, offered the company a 650 million-euro credit facility to help fund the purchase if needed, according to the filing.
L’Oreal said Magic’s board, as well as shareholders representing 62 percent of the company’s equity, support the proposed transaction.