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Kimberly-Clark's Softex Indonesia Buyout to Boost Growth

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Kimberly-Clark Corporation (KMB - Free Report) is focused on expanding its business in developing and emerging markets. This is evident from its definitive agreement to acquire Softex Indonesia — a leading player in the Indonesian personal care market. Per the deal, the company will buy Softex Indonesia from various shareholders including CVC Capital Partners Asia Pacific for an all cash transaction of $1.2 billion.

The transaction, which will be funded primarily by additional debt, is expected to be closed at the beginning of fourth-quarter 2020. Kimberly-Clark expects the deal to augment its footprint in the Southeast Asia region.

Softex Indonesia: A Worthwhile Bet

Softex Indonesia that derives nearly 80% of its revenues from the sale of diapers holds the second largest market share in the Indonesia diaper market. Brands like Sweety and Happy Nappy are positioned well in the market. Moreover, management highlighted that the diaper market in Indonesia is currently the sixth largest globally with an estimated value of $1.6 billion. Clearly, the acquisition of Softex Indonesia will help Kimberly-Clark to accelerate its growth in the fast-growing Indonesian diaper market.

Apart from this, Softex Indonesia caters to the demand in feminine care and adult care categories. In fact, it appears to be well placed in both the categories. Notably, the company holds the position of the third largest player in terms of market share for the feminine care category. In the adult care category, it stands at the second place.

Well, Softex Indonesia’s solid market presence, efficient production capabilities along with a robust distribution network is likely to boost Kimberly-Clark’s business in the Southeast Asia region.

Coronavirus-Led Demand Aiding Kimberly-Clark

While the coronavirus outbreak has disrupted economic activities globally, several companies like Kimberly-Clark are benefiting from the burgeoning demand for essential items. In fact, coronavirus-led increased stay at-home and pantry-loading trends bolstered the company’s second-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Also, earnings increased year over year. Revenues improved slightly and organic sales rose 4%. The quarterly performance reflected sales growth in the Consumer Tissue segment amid the coronavirus outbreak.

Given such impressive trends, we believe that the acquisition of Softex Indonesia is likely to add new pages to the growth story of this provider of various essential hygiene products. Shares of this Zacks Rank #3 (Hold) company have gained 13.2% so far this year compared with the industry’s growth of 5.3%.

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