NEW YORK (MarketWatch) — Shares of Bare Escentuals Inc., maker of the BareMinerals makeup line, surged Friday after Japanese beauty giant Shiseido Co. agreed to buy the cosmetics company for $1.7 billion to further both companies’ international growth, including expanding Shiseido’s U.S. presence.
Shares of Bare Escentuals
which went public in 2006, jumped 42% to close at $18.07. They’ve almost quadrupled in the past year even though they are still trading at less than half the value of its peak price of $42.99 in May 2007.
Shiseido shares closed up 5.1% in Tokyo trading.
Shiseido (4911), through a U.S. subsidiary, said late Thursday it’s paying $18.20 a share in cash — a 43% premium over San Francisco-based Bare Escentuals’ closing price on Jan. 14.
Shiseido, Japan’s No. 1 cosmetics company whose portfolio of 20-plus brands includes Maquillage in addition to its namesake label, had sales of $7.5 billion, two-fifths of which came from outside Japan, in fiscal year 2009. Analysts, on average, estimated Bare Escentuals to generate 2009 sales of $544.6 million, according to FactSet Research.
Bare Escentuals’ BareMinerals line sparked a revolution in the cosmetics industry, luring women from traditional liquid and pancake makeups to loose-powder mineral-based products. The company, through home shopping network QVC, its own retail stores and retailers such as Sephora and Ulta Salon, Cosmetics & Fragrance Inc.
has carved a big niche for mineral-based beauty products. Its larger rivals, including Estee Lauder Cos.
and Procter & Gamble Co.
which owns Cover Girl, have expanded into that segment to steal its share, analysts said.
“Bare Escentuals has taken the share and the question is how much further can it grow?” said Ken Wasik, managing director in consumer products & services with boutique investment firm Stephens Investment Bankers, in an interview. “Shiseido is a huge giant in Asia. What they lacked is distribution in the U.S. I wouldn’t be surprised if they are looking to build their product base in home shopping network (after the deal).”
The deal also signals more consolidation in the personal care and household products sector with valuation in the space the lowest in 10 years, Wasik said. The timing also is good for so-called strategic buyers with financial players having trouble getting debt financing with access to credit still remaining tight, he said.
“You’ll see continued consolidation,” he said.
In announcing the deal late Thursday, Shiseido said the buyout will help expand its brand portfolio into the growing mineral-based markets and attract a wider customer base.
With a presence in more than 70 countries, it also will help Bare Escentuals — with more than 85% of its revenue from the U.S. — expand to Japan and other fast-growing Asian markets such as China. It also will allow it to tap into the Japanese company’s huge research and development resources to develop other products, analysts said.
In the $43.6 billion global color cosmetics market, Asia is expected to grow an average of 9.7% in the next five years while sales in the U.S. and Japan each is projected to see declines, Euromonitor data showed. Shiseido holds about a 15% share in the Asian market, making it the largest in the region. In the U.S., it ranked 11th in 2008, owning only a 1.6% share of the market, according to Euromonitor. The research firm said it doesn’t track mineral makeup as a separate category.
“The acquisition should further enable Shiseido to move toward its goal of becoming a global player in the cosmetics market,” said William Blair & Co. analyst Jon Andersen.
Terms of the transaction, expected to close in the first quarter, stipulate the continued employment of Bare Escentuals’ Chief Executive Leslie Blodgett. Blodgett has agreed to exchange 40% of her existing common stock ownership in Bare Escentuals for a continuing interest in the company after the merger.
Private-equity firm Berkshire Partners LLC and certain of its affiliated entities, which collectively hold about 16% of Bare Escentuals’ outstanding common stock, have agreed to tender their shares into the deal.
In addition to Blodgett, Myles McCormick, chief financial officer and chief operating officer, has entered into new employment agreements with Bare Escentuals.
View more information: https://www.marketwatch.com/story/shiseido-to-buy-bare-escentuals-for-17-billion-2010-01-15