CORRECT: Shiseido To Buy Bare Escentuals For $1.7 Billion In US Growth Drive
January 15 2010 - 6:01AM
Dow Jones News
Shiseido Co. (3861.TO) is set to acquire U.S. make-up company
Bare Escentuals Inc. (BARE) for $1.7 billion, marking the largest
acquisition in the 83-year history of Japan's biggest cosmetic
maker.
The move underlines Shiseido's push to gain a presence in the
U.S. market, where it has been a smaller, niche player until now.
It also highlights the fact that, faced with lackluster demand at
home due to a shrinking population, Japanese companies are
aggressively seeking out global acquisition targets in order to
expand their businesses.
Under terms of the agreed offer, Shiseido plans to purchase all
outstanding shares of Bare Escentuals common stock for Y18.20
apiece--a 43% premium to its closing price on the Nasdaq in New
York on Thursday. Shiseido plans to finance the deal through a
combination of its own cash holdings and a bridge-loan from
banks.
The acquisition would catapult Shiseido to become the
fourth-biggest cosmetics company in the world by sales, from number
six where it is now, putting it just behind L'Oreal SA (OR.FR),
Procter & Gable Co. (PG) and Unilever PLC (UL).
The deal was announced Friday morning in Tokyo, shortly after
the Japanese stock market opened, and Shiseido's shares jumped 5%
on the news. At the 0200 GMT close of morning trading, Shiseido
shares were up 4% at Y2,020. "As the company is struggling to
increase profits in Japan while customers tighten their purse
strings, this may help expand its overseas business opportunities,"
a fund manager said, speaking on condition of anonymity.
The U.S. was the most targeted nation by Japanese companies last
year, as the dollar weakened against the yen to a 14-year low,
hiking Japanese companies' purchasing power. Japanese companies
spent $5.89 billion on 82 deals in the U.S. last year, according to
data provider Dealogic.
"Our business in the States had been the weakest, and we needed
a bit more presence in America," said a Shiseido spokesman. "Asia
is still the most important market to us, but we wanted more of a
boost in the U.S."
Shiseido, which approached Bare Escentuals, has been talking to
the U.S. company about the deal since last August, a spokesman
said. Shiseido has been aggressively expanding in Asia, where it is
now the third-biggest brand in the crucial Chinese market. But its
presence in the US has been small: in fiscal 2009, only 21% of the
company's global sales were generated from the U.S., compared with
45% from Asia and 34% from Europe.
Based in San Francisco, Bare Escentuals is widely credited with
beginning the trend of "mineral" makeup - loose powder that looks
like a more natural solution than traditional cake powders and
foundations. Its founder and chief executive, Leslie Blodgett, has
become a cult icon among beauty insiders.
Bare Escentuals gained particular traction with young American
women concerned with their complexion and willing to pay top dollar
to improve it. The company has a 67% market share in the mineral
foundation market, according to data compiled by Shiseido.
Bare Escentuals went public just three years ago in 2006 in the
midst of a period of fast growth for the specialty cosmetics
company.
In the first half of 2006, just before the company had its
initial public offering, it saw its sales grow by more than 60%.
More recently the company has felt the pressure of a weaker
consumer environment in the U.S. as consumers have cut back on
discretionary purchases like pricier cosmetics. The high end
cosmetics maker for the most part sells through nontraditional
outlets like its own boutiques, on home shopping channel QVC and in
specialty stores like Sephora and Ulta.
Eric Wong, the company's vice president for investor relations,
said Bare Escentuals had agreed to the deal because it had been
looking to grow internationally. At the moment, the company gets
about 85% to 90% of its sales from the U.S., with the rest in
Western Europe and Japan.
"Expanding internationally had always been a goal," he said. In
Japan, for instance, the company has only a limited presence
through a home shopping network and infomercials. But the
acquisition could open up opportunities for it to grow through
other channels like department stores in Japan, he said.
The deal will also give Bare Escentuals broader global
exposure.
"We also hope to sell mineral foundations in Asia, using our
channels," a spokesman said.
BofA Merrill Lynch is acting as exclusive financial adviser to
Shiseido. Goldman Sachs & Co is acting as exclusive financial
adviser to Bare Escentuals.
-By Mariko Sanchanta, and Anjali Cordeiro of the Wall Street
Journal, and Ayai Tomisawa of Dow Jones Newswires; 813-6269 2793;
ayai.tomisawa@dowjones.com
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