Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Revlon is buying Elizabeth Arden...because two wrongs make a right?

Not to be unduly harsh, but these are two companies that have lost some relevancy with women today. And now they're merging in an $870 million deal that was announced Thursday after the market closed. 

Revlon has agreed to pay $14 a share in cash for Elizabeth Arden, a 56 percent premium to the stock's average closing price over the past 20 days. But just a year ago, Elizabeth Arden was trading above $14, so the fact that the company is willing to now sell at that price signals that it didn't see a rebound in the near future. 

Out of Fashion
Both cosmetics makers have struggled as of late.
Source: Bloomberg

Revlon itself needs a makeover, as I wrote in January after Ron Perelman, Revlon's controlling shareholder, announced he was exploring options for the cosmetics maker. Gadfly's Shelly Banjo speculated that Perelman could try to take Revlon private on the cheap, turn the business around, then sell it to a big consumer-products company and "take home all of the winnings himself, rather than sharing them with Revlon's other current shareholders." Perhaps that's still the playbook, with an extra play involved. 

Elizabeth Arden's revenue shrank the last two years, falling below $1 billion for the first time in a decade. Fragrances generate more than three-quarters of its sales, with the rest coming from skin care and cosmetics. In addition to its products being sold at stores such as Wal-Mart and Macy's, they're also found in Red Door spas, which are owned and operated by an entity in which it has a minority interest. 

Makeup Math
Without the acquisition, Revlon saw a maximum of $420 million of adjusted Ebitda this year, versus $560 million with the deal. It predicts $140 million of synergies.
Source: Bloomberg, company statement

Fabian Garcia, Revlon's new CEO, said both companies are "known for their iconic brands, entrepreneurial spirit and commitment to innovation." Yeah, well, used to be. Now all the people that don't buy Revlon makeup can also not visit Red Door Spa!

Revlon's latest results did show some improvement. But at drugstores, its shelves still look the least appealing, while other brands like CoverGirl (which Procter & Gamble is selling to Coty) sort of pop and have a more vibrant feel. And Revlon's current "Love Is On" ad campaign is just odd and puzzling. But as I've said before, these are all things that can be changed with some fresh ideas and a little TLC from good management. Try this slogan, Revlon: "Turnaround Is On."

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net