Revlon Seeks to Revive Cosmetics Clout With Arden Dealby and
Purchaser to pay 50% premium for maker of celebrity perfumes
Deal follows speculation that Revlon would be target itself
The $14-a-share deal values Elizabeth Arden at about $870 million when debt is included, New York-based Revlon said on Thursday. The cash transaction represents a 50 percent premium over Elizabeth Arden’s closing price of $9.31.
Revlon, controlled by billionaire Ron Perelman, sees an opportunity to revive the fortunes of Elizabeth Arden, an unprofitable company whose celebrity-branded fragrances have lost favor with consumers. The merger will bring together the 84-year-old Revlon with the 106-year-old Arden business in the hopes that a combined distribution network and marketing strategy can broaden their appeal.
“We see great opportunities for growth where they are strong and we are not,” Revlon Chief Executive Officer Fabian Garcia said on a conference call.
The deal marks a turnabout for investors, who had been speculating earlier this year that Revlon might be an acquisition target -- rather than a buyer. Perelman’s investment firm, MacAndrews & Forbes, announced in January that it would explore strategic alternatives for Revlon. That sent the shares surging as shareholders wagered that a buyout of the company was in the offing.
Instead, Revlon is turning to another well-known cosmetics name that has struggled to maintain growth in recent years. The deal will allow Revlon to expand its footprint in fragrances and skin care, Garcia said on the conference call. The company also sees growth opportunities in key regions that Elizabeth Arden is strong in, such as China and other Asian countries, he said.
For Elizabeth Arden, “finding a partner more capable of funding its entire portfolio is a positive development,” Jason Gere, an analyst at KeyBanc Capital Markets Inc., said in a note. “While revenue synergies may be limited from separate and distinct channels, sales within the channel can strengthen as the two entities complement each other’s weaknesses.”
Bank of America Corp. and Citigroup Inc. have committed about $2.6 billion to help pay for the acquisition and refinance Elizabeth Arden’s debt, as well as Revlon’s existing bank loan and credit line. The company expects cost savings of about $140 million from the merger by eliminating duplicated operations, gaining purchasing power and sharing a distribution network.
Elizabeth Arden shares soared as much as 48 percent to $13.79 in New York on Friday, in line with the transaction price. Revlon rose as much as 8.5 percent to $33.81.
Speculation that Revlon would be acquired was quelled in March when the company named Garcia as CEO and said the former Colgate-Palmolive Co. executive would revamp the business. Revlon’s previous CEO, Lorenzo Delpani, stepped down on March 1, citing personal reasons.
Perelman gained control of New York-based Revlon in 1985 using cash raised with the help of former junk-bond chief Michael Milken. He sought to take the cosmetics maker private in 2009, prompting a lawsuit from other investors that he agreed to settle.
Elizabeth Arden, meanwhile, has been a buyout prospect in the past. South Korea’s LG Household & Health Care Ltd. discussed acquiring the company in 2014, but ultimately decided against it.
In addition to offering skin care and makeup, Elizabeth Arden is known for selling fragrances under names such as Taylor Swift, Britney Spears and Elizabeth Taylor. The celebrity endorsements haven’t helped the company cope with a competitive market for cosmetics. It has posted almost $400 million in losses during the past two years.
Elizabeth Arden CEO Scott Beattie said on the conference call that the financial strength of the new combined company will help attract new licenses in perfumes which will comprise 21 percent of combined company revenue. He also expects the transaction to drive growth in some of its existing fragrance brands that have languished.
Both companies are coping with the shift to e-commerce, something Revlon has done better so far, according to Giulia Prati, an analyst at L2 Inc.
“Revlon has an opportunity here to share its digital know-how through this deal and bring Elizabeth Arden up to speed,” she said.