CL Colgate Palmolive Co

The European Union (EU) has shown the green flag to Colgate-Palmolive Co. (CL) to move ahead with its acquisition of the shower gel and deodorant brand Sanex for $980 million from Unilever Plc. (UL).

The EU is of the opinion that the transaction would not significantly impede effective competition in the European Economic Area, at least in a substantial part of it. However, strong competitors would leave no stone unturned to lure customers with sufficient number of alternative products.

Sanex is a premium-priced personal care brand with strong market share positions in Europe. This acquisition is expected to strengthen Colgate's important personal care business in Europe. The brand reported 2010 net sales of $273 million, primarily in Western Europe.

The sellout comes as a part of the divestment process that Unilever took up for getting clearance from the European Commission. Unilever had acquired global Body Care and European Detergents business units from Sara Lee Corporation (SLE) for $1.62 billion. Following the acquisition, the Commission came out with a ruling whereby Unilever had to divest the Sanex Brand in the European market. This entire initiative by EU was to restrict Unilever from gaining market monopoly.

In connection with the sellout, Unilever had proposed to buy the laundry detergent business in Columbia from Colgate for $215 million.  The detergent deal includes brands like Fab, Lavomatic and Vel, which could help enhance the company’s position in one of the larger markets of laundry detergents. However, this buyout of the Columbian business is subject to regulatory approval and the completion of the Sanex total takeover by Colgate-Palmolive.

Unilever officials report that the company’s focus is on bolt-on acquisitions that can strengthen the company’s existing portfolio and geographic presence, and help Unilever move closer to its goal of doubling the size of the business. The expansion of the Columbian laundry business will help the company steer in the desired direction.

Last month, Unilever’s profits soared driven by sales and volume gains in emerging markets. The Anglo-Dutch retail giant supplements its investment in the face of intensified competition to build its brands in developing economies.

Unilever, which competes with Kraft Foods Inc. (KFT) and Procter & Gamble Co. (PG), currently holds a Zacks #3 Rank. On a long-term basis, we maintain an Outperform rating on the stock with a short-term Hold rating.

 
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