Posted on: Tuesday, May 22, 2001
Procter & Gamble to acquire Clairol
By John Nolan
Associated Press
CINCINNATI — Procter & Gamble Co. will buy Clairol for $4.9 billion, a move that improves P&G's prospects in a hair coloring market grown more lucrative with the graying of baby boomers.
The deal with Bristol-Myers Squibb Co., announced yesterday, would give the consumer products giant another way to reach consumers it already serves with shampoo, conditioner and styling products, said A.G. Lafley, P&G's president and chief executive. He said sales of hair-coloring products are increasing at three to four times the sales of shampoo products worldwide.
The market is becoming more lucrative because of aging populations in developing countries, more men coloring their hair and more young people experimenting with hair coloring, Lafley said. Clairol trails industry leader L'Oreal in U.S. and global sales.
"Hair care clearly is one of our more promising businesses," Lafley told analysts in New York. "With the acquisition of Clairol, we'll become one of the two leaders in hair care worldwide."
The oldest of the baby boomers — those born from 1946 through 1964 — are now in their mid-50s.
If approved by regulators, the deal would add the Clairol, Herbal Essences and Nice 'n Easy brands to P&G's lineup of hair care products that includes Pantene, Pert, Head & Shoulders and Vidal Sassoon.
P&G executives said they are especially eager to expand sales in developing markets of Clairol's hair-coloring products, since 75 percent of the brand's sales now occur in North America and the United Kingdom. P&G's international marketing network and its consumer know-how from selling hair-care products makes Clairol a good fit, P&G officials said.
But P&G's winning bid had some detractors. The company's stock closed down $2.23 to $65.25 on the New York Stock Exchange, while Bristol-Myers Squibb lost 71 cents to $55.29.
Some analysts are concerned that P&G is still restructuring itself, dropping several of its food brands and cutting its work force by 17,500 jobs. And Clairol seems to have been less effective in appealing to younger customers than bigger rival L'Oreal, said analyst Carol Warner Wilke of Credit Suisse First Boston.
"L'Oreal has been taking share, and the Clairol brand needs to be repositioned," Wilke cautioned her clients in a research note. "A key growth area in hair color is among younger customers, and we do not believe that the current brand image of Clairol positions it to take advantage of this growing market segment.
"Some of P&G's businesses still have a ways to go on the improvement front, and we are concerned that the timing of such an acquisition could prove problematic," Wilke wrote.
Buying Clairol would be P&G's biggest acquisition, dwarfing its 1999 purchase for $2.3 billion of pet food manufacturer Iams Co.
New York-based Bristol-Myers Squibb put Clairol up for sale last September so it can focus on its drug business.
P&G officials said the deal is part of the company's plan to revitalize itself by focusing on building sales of big brands.
Sales in the worldwide, $37 billion market for hair-care products — including a $7 billion hair-coloring segment — are increasing by 3 percent annually.
Clairol controls 39 percent of the U.S. hair-coloring market, according to market research concern A. C. Nielsen; L'Oreal controls 50 percent. Worldwide, Clairol has a 12 percent share, also No. 2 behind L'Oreal.
Of Clairol's sales, 45 percent are in hair colorants and 55 percent are in shampoos and conditioners.
The acquisition would contribute about $1.6 billion in annual sales to P&G's $7.4 billion beauty care business.
Wendy Nicholson, an analyst for Salomon Smith Barney, told clients in a note that the acquisition was "an excellent strategic fit."
The expense of buying Clairol will cost 6 to 8 cents per share against P&G's earnings during the first year after the deal is completed, Lafley said. In the second year, the company expects Clairol to slightly benefit P&G's overall earnings.
It is unclear how many of Clairol's 4,000 jobs worldwide would be eliminated by P&G, which has its own distribution, research and manufacturing capabilities.
But P&G said it expects to save about $200 million in costs from combining the operations.
The deal also saves P&G potentially greater expenses of trying to develop and establish its own hair-coloring brands.
P&G has been test-marketing coloring products through its Vidal Sassoon brand that it developed from its research labs in Britain. But it has been reluctant to introduce an entirely new hair-coloring brand because of the high costs.
Procter & Gamble markets approximately 300 brands to nearly 5 billion consumers in more than 140 countries. Its beauty brands also include Olay, Max Factor, Cover Girl, Giorgio and Hugo Boss.
