Johnson & Johnson to Soak Up Neutrogena : Acquisitions: Health products company will pay a premium price to expand its line of skin and hair care products.
Aiming to broaden its offerings in the skin care business, Johnson & Johnson said Monday that it will pay a premium price of $924.1 million to acquire Neutrogena, the maker of premium-priced soaps, shampoos and other beauty products.
A deal had been widely expected after Los Angeles-based Neutrogena said earlier this month it was holding buyout talks with a “substantially larger” company.
Johnson & Johnson will pay $35.25 cash for each Neutrogena share--a 63% premium over the market price before Neutrogena disclosed Aug. 10 that it was talking with a possible buyer.
Analysts praised the deal and said they doubted a rival would step forward to break it up, mainly because of the high price offered by Johnson & Johnson.
The purchase unites Neutrogena’s well-regarded lines of skin and hair products with such venerable brands as Johnson’s Baby Shampoo and Baby Oil. Johnson & Johnson--which also makes Tylenol pain reliever, Band-Aids and the skin treatment Retin-A--has been trying to expand its line of skin care products.
Neutrogena shares rocketed $6.02 to $34.77 in Nasdaq trading Monday. The stock had traded as low as $16 earlier this year. Johnson & Johnson shares added 12.5 cents to $49.125 on the New York Stock Exchange.
Diana Temple, an analyst with Salomon Bros. in New York, said the deal will be a big boost to Johnson & Johnson’s efforts to build its skin products business. “Johnson & Johnson spends a lot of money on skin care research--they came up with Retin-A--and what they add here is a strong brand franchise in the Neutrogena name,” she said.
Besides its baby-care line, New Brunswick, N.J.-based Johnson & Johnson also has the Clean and Care skin care line for teen-agers that it purchased from Revlon in 1991. But that brand lacks the broad consumer recognition and reputation for quality enjoyed by Neutrogena.
Johnson & Johnson’s product research should help Neutrogena develop new products to compete with recent “high-tech” skin products from such competitors as Oil of Olay and Avon, analysts said.
Johnson & Johnson, the world’s largest health products company, will also be able to lend its expertise in international markets to boost Neutrogena sales abroad. Temple puts Neutrogena’s international sales at $72 million this year, out of total sales of $307 million. In contrast, many personal care products firms have sales two to three times better overseas than in the United States, she notes.
Although Neutrogena products are sold in 72 countries, Neutrogena Chairman Lloyd E. Cotsen declared it a company goal to “plant the Neutrogena flag internationally.” The company recently opened offices in Latin America and test-marketed its hand creams in China.
Rumors have circulated for years that Cotsen--who directly and through his family controls 45% of the company--was interested in selling. The talk began after sales and earnings at Neutrogena, which enjoyed spectacular growth through much of the 1980s, began to slip.
For the six months ended April 30, net earnings were flat, at about $9.3 million, and sales were off 2% to $133.7 million from a year earlier.
Cotsen personally owns 9.87 million of the 25.7 million Neutrogena shares outstanding. He will reap about $347.9 million, before taxes, by tendering his stake. Neutrogena officials did not return several phone calls seeking comment.
PaineWebber analyst Andrew Shore said Cotsen, 65, and Allan H. Kurtzman, the firm’s 67-year-old president and chief operating officer, apparently were ready to sell their interests and hand over the company to a new owner.
Cotsen “can go out with his head held high and know that he’s passed on something of value to someone,” Shore said.
* ‘SOAP SALESMAN’: Profile of Neutrogena CEO Lloyd E. Cotsen. D3
By acquiring Neutrogena, Johnson & Johnson adds more than 45 products to its own small but venerable line of skin and hair care products, including its mainstay, Johnson’s Baby Shampoo. Analysts say J&J; benefits by acquiring a widely respected line pf products, while Neutrogena gains a deep-pocketed parent that can help expand its international sales.
What J&J; currently has: * Johnson’s Baby Shampoo * Johnson’s Baby Oil * Clean and Clear skin cleanser
Among what J&J; will get: * Neutrogena Facial Bar Soap * Neutrogena Sunblock * Neutrogena Rainbath Shower and Bath Gel * Neutrogena Body Lotion * Neutrogena Shampoo and Conditioner * Neutrogena Face Cream
NEUTROGENA AT A GLANCE
Founded: 1954 Headquarters: Los Angeles Chairman and Chief Executive: Lloyd E. Cotsen Employees: 720 Products: soaps, shampoos, skin lotions and other personal care products. Stock price: $34.77 on Monday, up $6.02
Sources: Standard and Poor’s Corp.; Bloomberg Business News
Researched by ADAM S. BAUMAN / Los Angeles Times