Beiersdorf buys Chinese haircare business

The German company will spend $383 million on an 85% stake in C-BONS Hair Care with the option to increase its stake to 100% in two years.
Beiersdorf, which operates as Nivea Shanghai in China, is to buy 85% of C-BONS Hair Care, a leading player in the Chinese haircare market for Ç269.45 million ($383 million).

The deal reinforces that emerging markets like China and India, which present large opportunities for penetration of personal care products, are priority markets for future growth for multinationals such as Beiersdorf. And accordingly, players are having to adapt to local market conditions and adopt strategies suited for success in these markets.

A letter of intent between Beiersdorf and C-BONS was signed in February. Since then, C-BONS, which is owned by a Hong Kong based businessman, has been engaged in a restructuring exercise. C-BONS had several divisions including: cosmetics, personal hygiene products, hairdressing products, pharmaceutical products, real estates development and hotels. Presumably, it has used the intervening six months to hive off the non-haircare businesses pursuant to the sale.

Beiersdorf still derives 86% of its sales from Europe and the Americas and only 14% from the rest of the world, including Asia. But developed countries are registering only single-digit growth rates while Asia is an opportunity for 25% plus year-on-year growth.

ôIn addition to Europe, weÆre focusing on the Brazilian, Russian and Indian markets, but with a special emphasis on China,ö said Thomas-B Quaas, chairman of the Beiersdorf executive board, earlier this year.

Like a number of other multinationals in personal care products, Beiersdorf has had a checked history in China. It entered China in the early-90s but misjudged the brand awareness for Nivea as well as customer preferences for certain types of products. By the time Beiersdorf realised it should enhance focus on facial products and on key cities in China, it had chalked up seven years of losses.

Once it changed its strategy, Beiersdorf was successful in establishing Nivea and Eucerin and has been registering year-on-year growth of around 50% for the last two years, significantly higher than the industry average. But China is still not a large business for Beiersdorf.

A source close to the deal will not share revenue data for either Nivea Shanghai or C-BONS, but observes that: ôBeiersdorf will add more than its existing revenues in China via the C-BONS deal and the deal will be transformational for BeiersdorfÆs China strategyö.

C-BONS haircare products complement BeiersdorfÆs skincare business. C-BONS range of Slek and Maestro shampoos, conditioners and hair-styling products, its well-entrenched distribution network, ability to innovate quickly and knowledge of local markets are expected to help Beiersdorf to strengthen its business in China.

For its part, C-BONS has been facing intense competition over the last few years, especially since Procter & Gamble (P&G) increased its ownership and focus in China. Also, analysts have commented that C-BONS has not been able to create distinct positioning for each of its brands with the result that its own brands cannibalise each other.

The deal is structured in two tranches. Beiersdorf will buy 85% now and has an option to buy the balance 15% any time after two years for a floor price of Ç47.55 million. The structure is intended to ensure that the C-BONS business gets the necessary support and continuity from the exiting partner.

The transaction values C-BONS Hair Care at Ç317 million on a cash- and debt-free basis. Sources say the valuation is a ôrich multiple of C-BONÆs current revenues and profitsö.

Wu Yong-nan, current president of C-BONS Hair Care, will become CEO of the new company. Werner Brettschneider, BeiersdorfÆs newly appointed president for Greater China, will be chairman of the board.

This is the largest transaction in the personal care sector in China following P&GÆs buyout of its partner, Hutchison. P&G entered China in 1988 via a joint venture with KS Li's company, Hutchison Whampao. P&G owned a 69% stake and Hutchison owned 31% in the JV. In 1997, following a restructuring, P&G increased its ownership to 80%, then in 2004, it paid $1.8 billion to increase its ownership to 100%. P&G has been very successful in creating brand preference for the Olay range and is now piggybacking this to launch other products.

JP Morgan acted as financial advisor to C-BONS and BNP Paribas advised Beiersdorf.
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