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P&G Makes Bid for Clairol



Published May 7, 2001
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Procter & Gamble is battling Kao Corp. for the chance to acquire the Clairol unit of Bristol-Myers Squibb, according to a report in The Wall Street Journal. P&G is bidding about $4 billion to $4.5 billion to buy Clairol from Bristol-Myers Squibb. At that price, it would be P&G's biggest acquisition ever and put the company at or near the top in the U.S. hair coloring market.

Spokesmen for the companies declined to comment. A spokesman for Bristol-Myers Squibb also declined to comment on the bidding of either P&G or Kao.

If P&G pays $4 billion to $5 billion for Clairol, the deal, excluding any benefits from combining operations, would "very slightly" hurt earnings, by about five cents a share in the first 12 months, according to Heather Hay Murren, an analyst at Merrill Lynch. Clairol had $2.06 billion in sales last year; its U.S. sales fell 4% while international sales fell 9%, she says. Considering P&G's $40 billion in annual sales, she considers the acquisition manageable.

P&G may face antitrust hurdles. It already is the biggest shampoo seller at U.S. mass-market stores. Clairol is the third-biggest shampoo company and the No. 1 hair-care products company in the U.S. P&G could get a deal approved if regulators include the professional hair care market, which includes salons; otherwise it might have to shed some lines, further complicating the transaction, according to some analysts.

Several major investors say they are on the fence about a Clairol acquisition, and P&G would have to sell Wall Street on the strategy. When it contemplated -- but walked away from -- a major pharmaceutical deal in January 2000, P&G's stock was pummeled. A drop in stock price would carry a particular sting now, because it would make cutting jobs harder. Most P&G employees have a large chunk of their retirement savings in P&G stock, and would be less likely to take voluntary early retirement if their nest eggs shrink. Several institutional investors said they wouldn't support the deal unless P&G sheds other product lines to narrow its focus.

Given P&G's shampoo stronghold, the appeal of Clairol lies in its hair-color lines. Hair dye is a fast-growing and lucrative market, appealing to aging baby boomers as well as younger women and men who experiment with color. Sales of hair-coloring products rose 6.7% for the 52 weeks ended March 25, while shampoo sales increased 1.5%, according to Information Resources Inc., the Chicago market-research firm. Clairol and L'Oreal dominate hair-color sales; with a 41% share of the market, L'Oreal is just ahead of Clairol, which has a 37% share, according to IRI. Some analysts say P&G should simply develop its own hair color products. In fact, the company has been doing small tests with its Vidal Sassoon brand in the U.K. A P&G spokeswoman says the test is just a chance "to learn" and declines to comment further.

"The question is, should they build or buy" to get into hair color? says Dan Popowics, an equity analyst at Fifth Third Bank in Cincinnati, which counts P&G stock as one of its large investments. With Clairol, P&G instantly would be a large player, he says, adding, "It's cleaner. You avoid the pitfalls and start-up expenses."

In an unrelated announcement, P&G said it is in talks with media giant Viacom Inc. regarding a $300 million cross media sales deal, under which P&G could buy advertising time across Viacom's vast media properties, Advertising Age reported on Monday.

According to Ad Age, the deal would be one of the largest cross-divisional deals ever and would include Viacom companies such as television network CBS, cable network MTV and TNN.


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