The cosmetic industry is in huge demand currently. With the improvement in the U.S. economy, shoppers have started spending on beauty and personal care products as well as apparel, footwear and personal accessories apart from buying essential and non-durable goods. The rise of e-commerce and social media has provided a further impetus to the fast-growing beauty channels. In such a scenario, many companies are looking for opportunities to strengthen their footholds in the fast-growing beauty segment. Unilever Plc (UL - Free Report) is no exception. This global consumer products giant recently clinched a deal to buy cosmetics company Carver Korea for 2.27 billion euros ($2.71 billion) from Goldman Sachs, Bain Capital and Carver's founder. Bain and Goldman jointly held 60.39% of Carver at the end of 2016, while its founder Lee Sang-rok held a 35% stake. Carver generated sales of 321 million euros ($381 million) with core profit of 137 million euros in 2016.
Acquisition Benefits for Unilever
Notably, the Anglo-Dutch company has been striking many skincare and cosmetics deals in the past to expand its footprint in the global beauty business as well as move away from its slower-growth food segment. Carver will join brands including Hourglass, Murad, Kate Somerville and REN in Unilever’s Prestige division.
The acquisition is likely to provide ample growth opportunities to Unilever in both North and South Korea, despite geopolitical tensions between China and Korea related to the missile tests and China’s banning of tour packages to South Korea. The deal will open doors for Unilever in South Korea, where skincare sales are expected to reach $6.3 billion this year, according to research firm Euromonitor. Unilever will be able poised for growth in the skincare business in South Korea through its AHC brand of anti-ageing creams, moisturizers and other skin products. Unilever will also have access to North Asia’s skincare market, where Carver has significant presence. With this acquisition, Unilever will expand in the fourth-largest skincare market, as per reports.
The buyout will also place the company in the beauty category which has been witnessing high growth, driven by social media content and diversified professional make-up techniques. Cosmetic companies like Estee Lauder Companies, Inc. (EL - Free Report) and Nu Skin Enterprises Inc. (NUS - Free Report) are growing significantly courtesy of rising demand for beauty products. We expect the acquisition to strengthen Unilever’s portfolio and generate substantial revenues.
We note that Unilever has been trying all means to become more reliant on bath, body and beauty products after the unexpected $143 billion takeover attempt by Kraft Heinz Co. (KHC - Free Report) in February 2017. Since then, the company has undertaken a comprehensive review to return more cash to shareholders through buybacks and dividends as well as raise its margin target in order to boost its performance. In April, Unilever has reportedly decided to sell its shrinking spreads business, including brands like Flora and Stork butter. Furthermore, the company announced plans to raise cost-savings target as well as combine foods and refreshments businesses.
Stock Price Movement
The company has been trending higher on the back of its recent strategic business reviews, aiming to deliver profits and boost shareholders value amid sluggish growth and increasing competition in the global packaged goods industry.
A glimpse of Unilever’s stock performance shows that its shares have been rallying since the company rejected Kraft Heinz deal. Since Feb 17, the company’s shares have rallied 35.1%, outperforming the industry’s gain of 11.8% and the broader Consumer Staples sector’s growth of 4.5%.
Unilever currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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