Unilever (UL: Charts, News, Offers), the Anglo-Dutch multinational maker of consumer products, whose multi-billion dollar brands include Dove, Lipton’s, Knorr, Hellmann’s, Ben & Jerry’s, Breyer’s and many more, has entered an agreement this week to acquire to American personal care products maker Alberto-Culver (ACV: Charts, News, Offers) for 3.7 billion in an all-cash buyout. By paying a 37.50 per share, a 19% over Alberto-Culver’s closing price on Friday, Unilever acquires haircare products V05, Nexxus and TRESemme to bolster its personal care portfolio. How will this massive transaction boost the 83 billion market cap consumer giant, whose main rivals include Kraft (KFT: Charts, News, Offers), Nestle, Pepsico (PEP: Charts, News, Offers) and Procter & Gamble (PG: Charts, News, Offers)?
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70% of Unilever’s sales come from its top 25 brands, which mainly come from two categories – Food and Beverages and Personal Care. The Alberto-Culver deal will boost its Personal Care segment significantly. While the initial price tag seems steep, the newly acquired lines are expected to begin profiting within the first year; in addition, the combination of its personal care products, both previously owned and newly acquired, is forecast to yield synergies exceeding 10% of Alberto-Culver’s $1.6 billion sales, as reported in the most recent quarter. In other words, there will be a projected savings of over $160 million for Unilever within the first year due to the buyout. Also of key importance is Unilever’s new foothold in emerging markets such as Mexico and Argentina, where Alberto-Culver brand TRESemme hair products are popular. Alberto-Culver’s hair care portfolio also raises Unilever’s U.S. market share to 23%, up from its current 11% with the newly acquired product lines complementing Unilever’s Suave, Dove and Sunsilk brands. This gives it a stronger position against current hair care market leader Procter & Gamble, which holds 29%, and L’Oreal, which holds 15%. Unilever has enjoyed increasing net profit margins – 9.82% up from 9.19% a year earlier, and the stock currently pays out a healthy quarterly dividend of 0.28 per share. The deal was paid in all cash, so investors need not be concerned about possible share dilution down the road.
“Personal Care is a strategic category for Unilever and growing rapidly,” stated Unilever CEO Paul Polman, “Ten years ago it represented 20 percent of our turnover; strong organic growth has driven it to now reach over 30 percent, with strong positions in many of the emerging markets.” Carol Lavin Bernick, Executive Chairman of Alberto-Culver, said of the acquisition, “We believe that for these brands to achieve their full potential, they need to be able to compete in all major global markets. We believe Unilever is such a company and we believe we are maximizing value for our shareholders through this agreement.”
While both companies have stated their strong support of the acquisition, the buyout must be passed by both UN and ACV Board of Directors. As of this writing, only UN directors have approved the purchase, though it is widely expected that ACV will approve the deal. In addition, several law firms have opened investigations into “possible breaches of fiduciary duty and violations of state law” by the ACV Board, which in less opaque layman’s terms simply states that the board failed to obtain the best possible price for the company, despite a 19% premium on an all-time high stock price prior to the offer, and may not have fully valued ACV’s potential for growth. A cancellation clause of 125 million was also announced on Monday, which Unilever must pay Alberto-Culver if the deal fails to go through.
Going forward, Unilever is relying heavily on Developing and Emerging countries such as Brazil, India and China, which have made up half of the company’s total revenue. While the company was hit heavily during the 2009-2009 economic downturn, in which net income fell 30.8% due to falling prices of consumer products and shrinking margins, it has recovered remarkably, entering the first quarter of 2010 with a 31% gain in net income. it currently faces strong economic headwinds with rising commodity prices, as do its industry rivals. Keep an eye on Unilever to see if this acquisition can turn the tide against its well-heeled competitors.
Other News About UL
Unilever Expands Personal Care Range With GBP 3.7B Buy
Alberto-Culver Surges on Unilever Deal
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
