Unilever, the world’s second-biggest consumer-goods company, agreed to acquire OAO Concern Kalina in a deal that values the Russian skincare maker at 21.5 billion rubles ($694 million) to tap growth in emerging markets.
Unilever will buy 82 percent of the maker of Black Pearl facial products and Silky Hands creams for about 16.7 billion rubles and make an offer for the rest once the transaction is completed, the London and Rotterdam-based company said today.
The maker of Dove skincare and Magnum ice cream is looking to expand in faster-growing emerging markets as increasing competition and sluggish economies stint sales in western Europe and North America. Kalina, headquartered in Ekaterinburg, Russia, also meets the company’s goal of boosting its personal-care unit, which was Unilever’s fastest-growing division last year as consumers snapped up products including Vaseline.
“The deal metrics are really quite compelling,” said Martin Deboo, an analyst at Investec in London. “It’s an expression of their strategic intent to grow personal-care in developing and emerging markets.”
Kalina rose as much as 40 percent to 3,077.2 rubles in Moscow trading. Unilever gained 2.8 percent to 24.74 euros in Amsterdam.
The acquisition “will transform Unilever’s personal-care business in Russia, giving us leading positions in skin care and hair care, as well as establishing a presence in oral care,” Chief Executive Officer Paul Polman said in a statement.
Kalina, Russia’s largest personal-care company, more than doubled net income to 975 million rubles in 2010 from 413 million rubles a year earlier, aided by demand for cosmetics. The business, which employs about 1,900 people, will have sales of about 13 billion rubles this year, Unilever estimated.
Kalina “is an attractive acquisition for Unilever as it would provide the company with dominant market shares in the Russian personal-care market,” Richard Withagen, an analyst at SNS Securities in Amsterdam, wrote today in a note.
Unilever aims to double sales within 10 years. The company bought Sara Lee Corp.’s international toiletries unit last year for 1.2 billion euros ($1.7 billion) and added hair-care brands including Nexxus and TRESemme with the $3.7 billion acquisition of Alberto Culver Co., its biggest deal in a decade.
Almost half of Unilever’s sales last year came from home and personal-care products, while more than 55 percent of its business is generated in emerging markets. So-called organic growth is the “cornerstone” of the company’s ambition to double sales, Polman said in the statement.
The transaction implies an enterprise value of 25.9 billion rubles for Kalina, Unilever said, and a deal multiple of 11.7 times earnings before interest, taxes, depreciation and amortization. Unilever has paid an average multiple of 12.11 for deals in the last five years, according to Bloomberg data.
“These are fair multiples for what should prove to be a decent acquisition,” said Andy Smith, an analyst at MF Global in London. “It is strategically sensible and reinforces the group’s emerging-markets footprint.”
Unilever may be able to reduce costs by as much as 30 million euros after the acquisition, Alex Smith, an analyst at Nomura in London, wrote in a note today. The purchase will make Unilever the fifth-biggest company in the “fragmented Russian beauty and personal-care market,” he said.
Oriflame Cosmetics SA jumped in Stockholm trading today on speculation that other eastern European personal-care companies might attract investment, according to Ian Simpson, an analyst at RBS. Oriflame, which got 58 percent of revenue from the Commonwealth of Independent States and Baltic regions last year, rose as much as 6.2 percent.
Unilever entered Russia in 1992. The company acquired the Russian sauces business of ZAO Baltimore in 2009 and Inmarko, the country’s biggest ice-cream maker, in 2008.
Russia is set to report economic growth of 4.5 percent this year and in 2012, more than twice as high as the U.S. and Europe, according to Bloomberg data.
Kalina is Unilever’s second purchase this week, and the third this year. The company said on Oct. 11 it agreed to buy Ingman Ice Cream Oy Ab in Finland, while in August it bought Darko, a Bulgarian ice-cream maker.
Kalina, which first sold shares in an initial public offer in 2004, was founded in 1942 in Russia and sells products in countries including Ukraine and Germany, its website shows.
Unilever said it expects to complete the transaction by the end of 2011, subject to regulatory approvals. The company was advised on the deal by Goldman Sachs Group Inc.