Johnson & Johnson, in a move that will give it a major share of the lucrative sanitary protection market, said Tuesday that it agreed to buy for $726 million the Playtex Holdings Inc. subsidiary that makes tampons.
The unit, Playtex Family Products, is the second-largest U.S. maker of tampons with a 25% market share and the most profitable of Stamford, Conn.-based Playtex's three subsidiaries.
Johnson & Johnson now has about 6% of the U.S. market with its o.b. tampons, analysts said. However, the o.b. tampons are not popular among U.S. women because they lack a plastic applicator, which Playtex tampons have. Overseas, the o.b. tampon has a larger following, accounting for about $150 million in annual sales, analysts said.
Tambrands Inc., which makes Tampax tampons, leads the market with a share exceeding 45%.
"With the acquisition Johnson & Johnson is eliminating one of their competitors and dramatically improving the profitability of one of their businesses," said Barbara Ryan, an analyst with Bear, Stearns & Co.
Johnson & Johnson shares rose $2.25 to close at $82 in New York Stock Exchange trading Tuesday.
Tampons make up the fastest growing and most profitable segment of the $1.5-billion sanitary protection market, according to analysts. Over 12 billion units of sanitary napkins and tampons are sold each year in the United States, with tampons accounting for about a third of the retail market.
Playtex Family Products makes and markets Playtex tampons, Playtex disposable nursers, Playtex Living and Handsaver gloves, and Tek toothbrushes.
Joel Smilow, Playtex chief executive, declined to disclose the unit's sales, but analysts said its tampons accounted for about $300 million to $325 million in sales last year and its operating profit far exceeded 30% of sales.
Playtex Holdings is a private company acquired from a unit of BCI Holdings on Dec. 12, 1986, in a leveraged buyout.
The planned purchase does not include Playtex Apparel Inc., maker of the Cross Your Heart bra as well as other women's undergarments. The sale also excludes Playtex Jhirmack Inc., which makes hair care products, primarily shampoos and conditioners under the Jhirmack trademark.
Smilow said the sale of the family products unit would place Playtex in a position to reduce its acquisition debt. It also will allow the company to focus primary attention on its worldwide apparel business, which has sales and operating profits of about $300 million and $45 million, respectively.
Smilow said the apparel unit was relatively unprofitable and Playtex has no plans to sell the unit.
Analysts said the acquisition will nicely complement Johnson & Johnson's sanitary napkin business, where it is the market leader with a 45% share. Johnson & Johnson's sanitary pads include the Stayfree and Sure & Natural brands.
Analysts also said Playtex will boost operating profits in the Johnson & Johnson consumer products division.
"It is strategically a good move for the company," said Larry Feinberg, an analyst who follows the company for Drexel Burnham Lambert. He said the purchase, expected to be closed in the third quarter, should not dilute Johnson's earnings.
In 1986, Johnson & Johnson earned $329.5 million on sales of $7 billion, which included a charge for the sale of the company's Technicare diagnostics unit.
Analysts expect Johnson to earn about $830 million on sales of $8 billion in 1987.