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News > International
P&G sets $5B Clairol deal
May 21, 2001: 2:25 p.m. ET

U.S. consumer goods maker will buy hair-care business from Bristol-Myers
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NEW YORK (CNN) - Procter & Gamble Co. agreed Monday to buy Clairol from drugmaker Bristol-Myers Squibb Co. for about $5 billion in cash in a bid to expand its hair care business and give a boost to sluggish sales.

The maker of Crest toothpaste, Pampers diapers, and other household products said it expects the deal to add about $1.6 billion in sales to its beauty care business, with Clairol's hair care products delivering $900 million in sales and hair coloring products adding another $700 million.

"Clairol brings P&G into the fast-growing business of hair colorants and positions us for further growth in one of our core business categories: hair care," P&G Chief Executive A.G. Lafley said. "This acquisition has all the right elements -- leadership brands, attractive margins and potential for growth. It is a winning combination for our consumers, our customers, our company, and our shareholders."

P&G's winning bid beats an earlier $4.5 billion bid from Japan's Kao Corp., owner of Jergens. Though Kao's offer was slightly lower than P&G's initial bid, many analysts expected it would be the winner because it does not face antitrust hurdles P&G probably will have to overcome.

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P&G's strong presence in the shampoo market, where it sells the Pantene and Head and Shoulders brands, has raised concerns that its offer could be subject to a long antitrust review.

But P&G sweetened its proposal by hundreds of millions of dollars and gave certain assurances on antitrust issues that apparently satisfied Bristol-Myers, the Wall Street Journal reported Monday, citing people familiar with the matter.

Analysts have expressed concern about P&G's move for Clairol because the Cincinnati-based company is in the process of reducing its overall work force by 17,400, a spokesman said. The company has also lowered earnings forecasts due to sluggish sales growth and stiff competition.

Analyst William Steele of Banc of America Securities downgraded P&G stock based on the announcement. The purchase adds another layer of complexity to an organization already in the midst of a transition, he said.

"This must be a difficult sale internally," Steele said. "They don't have enough to pay people but they have $5 billion for a hair care company."

"We're not particularly positive on [the deal] at this point," added analyst Carol Warner Wilke, of Credit Suisse First Boston. "P&G has a lot on its plate. It's a troubled business of its own and Clairol is under performing."

P&G (PG: down $2.43 to $65.05, Research, Estimates)  said Monday it expects savings of $200 million once the deal is complete. The purchase should add to earnings in two years but will dilute earnings by 6-to-8 cents a share in the first year.

Clairol, with $1.6 billion sales, ranks second in the U.S. to rival L'Oreal.

Clairol is a great brand but P&G does not have the luxury to buy a company when its own internal base is not doing well, Steele said.

The nearly $5 billion purchase price is also higher than expected. However, the buy has long-term potential for P&G but will be disruptive for the next couple of years, CSFB's Wilke said, who has a hold rating on P&G stock.

"We are concerned about the big market share losses the brand is experiencing," she said.

P&G stock fell about four percent in afternoon trading, while Bristol-Myers dropped by nearly a $1.

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Hair coloring products have generated 4-to-6 percent growth over the past five years, P&G said -- about double the growth of shampoo, conditioners and styling aids as consumers increasingly use it as a fashion accessory. Usage among young consumers is on the rise, the company added.

The sale of Clairol will complete a strategic overhaul at Bristol Myers-Squibb (BMY: Research, Estimates). The New York-based pharmaceutical company has also announced it will spin off Zimmer, its orthopedic subsidiary, in a bid to concentrate on the drug business. graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.