Procter & Gamble Co. said Tuesday that it has agreed to buy a controlling stake in German hair care company Wella in a deal valuing Wella at $5.7 billion, strengthening P&G;'s position in the fast-growing global hair care business.
P&G;, which bought the Clairol hair care business in 1991 and is dueling with France's L'Oreal for supremacy in the global hair care sector, agreed to buy a 77.6% stake in the company from Wella's family owners and plans to commence a tender offer for the remaining shares.
P&G;, the leading U.S. consumer products company whose products include Tide detergent and Herbal Essences shampoo, said the deal would move it into the $10-billion salon products business and strengthen its coloring and styling products business in Europe. Wella also would bring fragrances such as Gucci and Dunhill.
P&G; also would assume more than $1.1 billion in debt in the deal. It said the acquisition would add to earnings within two years after the deal closes.
The deal is the largest in P&G;'s history, exceeding its $4.95-billion Clairol acquisition. The $35-billion global hair care business is one of the fastest growing in the consumer products sector, with people spending more and more on hair color, styling gels and other primping products.
"Yes, they are spending a lot of money, but they are getting a lot," said Simon Burton, an analyst at Banc of America Capital Management, a P&G; shareholder. P&G; shares rose $1.12, or 1.3%, to $86.62 on Tuesday on the New York Stock Exchange. Wella shares jumped 19.8%, or 14.95 euros, to 90.45 euros, on the Frankfurt bourse.
The deal would give Wella the marketing and product development firepower to take on L'Oreal, the cosmetics giant that is regarded as a model of best practices in the sector.
"Wella offers hair care and coloring expertise and a strong franchise," said Susanne Seibel, consumer goods team leader at UBS Warburg in London.
P&G; hopes that selling products to salon professionals would help its overall business, just as relationships with veterinarians have helped its Iams pet food.
P&G; said antitrust approval in the U.S. and Europe was probably the only major hurdle, but stressed the two businesses have very little overlap.
P&G;'s move means a bitter defeat for its smaller German rival Henkel, which has long courted Wella in its drive to become big enough to compete in the top league of consumer cosmetics.