Elizabeth Arden Investors Sense Bid Amid Surprise Loss: Real M&A
2014-06-12 23:17:28.591 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle
June 13 (Bloomberg) -- Elizabeth Arden Inc.’s worst
earnings report may have put the company in play.
The shares sank the most in more than five years on May 13
after declining perfume sales resulted in a surprise loss for
its latest quarter. The $855 million company, which hired
Goldman Sachs Group Inc. to explore its options, had already
attracted interest from at least one potential buyer so far this
year, LG Household & Health Care Ltd. While the South Korean
company said this week it hasn’t yet decided whether to bid, the
stock rose 16 percent amid speculation a deal is imminent.
The sinking stock price doesn’t reflect any lost value in
the brand and a deal could benefit both the acquirer and
Elizabeth Arden, Telsey Advisory Group said. Cosmetic brands
tend to sell for about three times revenue, said B. Riley & Co.,
implying about $1.4 billion for the Elizabeth Arden line, before
accounting for its other brands. A deal looks more expensive
considering its weak earnings. An offer for more than $1 billion
would make it one of the industry’s priciest acquisitions
relative to profit, according to data compiled by Bloomberg.
“When you have a company with a valuable brand and the
share price drops because all of a sudden there’s mis-execution,
then there’s going to be interest,” Linda Bolton Weiser, a New
York-based analyst at B. Riley, said in a phone interview.
“They reported a really awful March quarter. The valuation
declined and yet the brand is still the brand, so it still has
the inherent value that it always would have had.”
Representatives for Elizabeth Arden didn’t respond to a
phone call or e-mail seeking comment.
Celebrity Fragrances
Last month, the company posted a net loss of $26.4 million
for its fiscal third quarter, the worst since at least 1997,
saying sales slid 20 percent.
About a third of its $1.24 billion of revenue in the past
12 months came from Elizabeth Arden namesake products, while the
rest was from celebrity fragrances such as Justin Bieber and
Nicki Minaj and designer perfumes such as BCBGMaxazria and Juicy
Couture. It also has a minority stake in the third-party
operator of the Red Door beauty spas.
Separating Brands
To open itself up to more buyers and command a higher
valuation, the company could sell its core brand separately from
the fragrance business, said David Wu, a New York-based analyst
at Telsey Advisory Group. Sales for the Elizabeth Arden brand
don’t reflect how well-known the name is, leaving room for a
buyer to try to narrow that gap, he said.
“There’s a huge disconnect between the high brand
awareness and relatively low sales volume,” Wu said in a phone
interview. “If you think about the core EA brand, there’s
really an opportunity to grow across all regions -- the U.S.,
Europe and Asia. An acquirer with a strong distribution network
and R&D capabilities could help drive stronger top-line
growth.”
Elizabeth Arden hired Goldman Sachs to contact private-
equity firms and other potential buyers, a person familiar with
the matter said in April, asking not to be identified because
the matter is private. The company confirmed the move last month
and said it was exploring strategic alternatives.
Try Again?
Shiseido Co., the Tokyo-based owner of BareMinerals and
Nars, is a possible suitor for the Elizabeth Arden brand, while
New York-based Coty Inc., the $6.5 billion company that
attempted a takeover of Avon Products Inc. two years ago, could
be interested in the entire company, Wu said.
Representatives for Shiseido didn’t respond to a request
for comment outside normal business hours. Representatives for
Coty also couldn’t be reached.
“I had thought that somebody like Coty would be a better
fit because they could really integrate it and take a lot of the
costs out,” Weiser of B. Riley said. “Coty would like to have
a brand like Elizabeth Arden in its portfolio.”
However, a bid from Coty may be unlikely now that it’s
spending $468 million to repurchase stock, she said.
Big Deals
Seoul-based LG Household, which generates almost all of its
revenue in its home country, said in April that it’s looking at
“big deals” locally and overseas, including one for Elizabeth
Arden. While about 60 percent of Elizabeth Arden’s revenue is in
the U.S., it also sells its products in Canada, Europe,
Australia, South Africa and China.
LG Household’s offer for Elizabeth Arden may be valued at
more than 1 trillion won ($983 million), Maeil Business
Newspaper reported in April, citing an unidentified investment
bank official. LG Household, valued at $7.4 billion, completed
its pre-due diligence and may spend the equivalent of $1.48
billion to purchase the company, according to an article this
week on DealReporter that cited a newspaper in South Korea.
Including Elizabeth Arden’s $368 million of net debt, an
offer at that level would be about 23 times what the company
earned before interest, taxes, depreciation and amortization in
the past 12 months, data compiled by Bloomberg show. That would
be among the most expensive cosmetics deals larger than $500
million, which have gone for a median of 13.5 times Ebitda, the
data show.
Hee-Jung Park, a representative for LG Household, said in
an e-mail earlier this week that while Elizabeth Arden is a
target LG Household is considering, “no specific details have
been determined as of now.”
Park couldn’t be reached for further comment outside of
normal business hours.
Without Buyers
The shares closed at $28.78 yesterday. If the company
doesn’t get acquired, they may trade for only about $30 in the
next year, according to the average of analysts’ estimates
compiled by Bloomberg.
An offer for about $1.5 billion would be at the high end of
the $30- to $41-a-share range that Wells Fargo & Co.’s Joe
Lachky sees as “most realistic,” the analyst wrote in a June
11 report. The multiple appears high because Elizabeth Arden’s
earnings are currently depressed, though it will likely take
several years to get back to peak earnings, he wrote.
Albert Saporta, head of research at Makor Capital Ltd. and
a managing director at AIM&R, said he values Elizabeth Arden at
$35 to $40 a share in a sale. That said, the market is pricing
in a low probability of an offer at the midpoint of that range,
he said in an e-mail.
It’s a “very attractive” situation for investors to bet
on because “the chances of a deal are way higher than that,”
Saporta said. “I think the probability is well above 50
percent.”
For Related News and Information:
Elizabeth Arden Shares Dive After Unexpected Quarterly Loss
NSN N5J4246S972F <GO>
Elizabeth Arden Is Said to Hire Goldman Sachs to Seek Buyers
NSN N4K6E26KLVRC <GO>
LG Household Says It’s Considering Bid to Buy Elizabeth Arden
NSN N4GRIW6K50YG <GO>
Bloomberg Industries - Household Products: BI HHCPG <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories of the day: DTOP <GO>
--With assistance from Joshua Fineman and Jodi Xu in New York
and Shinhye Kang in Seoul.
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Whitney Kisling
2014-06-12 23:17:28.591 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle
June 13 (Bloomberg) -- Elizabeth Arden Inc.’s worst
earnings report may have put the company in play.
The shares sank the most in more than five years on May 13
after declining perfume sales resulted in a surprise loss for
its latest quarter. The $855 million company, which hired
Goldman Sachs Group Inc. to explore its options, had already
attracted interest from at least one potential buyer so far this
year, LG Household & Health Care Ltd. While the South Korean
company said this week it hasn’t yet decided whether to bid, the
stock rose 16 percent amid speculation a deal is imminent.
The sinking stock price doesn’t reflect any lost value in
the brand and a deal could benefit both the acquirer and
Elizabeth Arden, Telsey Advisory Group said. Cosmetic brands
tend to sell for about three times revenue, said B. Riley & Co.,
implying about $1.4 billion for the Elizabeth Arden line, before
accounting for its other brands. A deal looks more expensive
considering its weak earnings. An offer for more than $1 billion
would make it one of the industry’s priciest acquisitions
relative to profit, according to data compiled by Bloomberg.
“When you have a company with a valuable brand and the
share price drops because all of a sudden there’s mis-execution,
then there’s going to be interest,” Linda Bolton Weiser, a New
York-based analyst at B. Riley, said in a phone interview.
“They reported a really awful March quarter. The valuation
declined and yet the brand is still the brand, so it still has
the inherent value that it always would have had.”
Representatives for Elizabeth Arden didn’t respond to a
phone call or e-mail seeking comment.
Celebrity Fragrances
Last month, the company posted a net loss of $26.4 million
for its fiscal third quarter, the worst since at least 1997,
saying sales slid 20 percent.
About a third of its $1.24 billion of revenue in the past
12 months came from Elizabeth Arden namesake products, while the
rest was from celebrity fragrances such as Justin Bieber and
Nicki Minaj and designer perfumes such as BCBGMaxazria and Juicy
Couture. It also has a minority stake in the third-party
operator of the Red Door beauty spas.
Separating Brands
To open itself up to more buyers and command a higher
valuation, the company could sell its core brand separately from
the fragrance business, said David Wu, a New York-based analyst
at Telsey Advisory Group. Sales for the Elizabeth Arden brand
don’t reflect how well-known the name is, leaving room for a
buyer to try to narrow that gap, he said.
“There’s a huge disconnect between the high brand
awareness and relatively low sales volume,” Wu said in a phone
interview. “If you think about the core EA brand, there’s
really an opportunity to grow across all regions -- the U.S.,
Europe and Asia. An acquirer with a strong distribution network
and R&D capabilities could help drive stronger top-line
growth.”
Elizabeth Arden hired Goldman Sachs to contact private-
equity firms and other potential buyers, a person familiar with
the matter said in April, asking not to be identified because
the matter is private. The company confirmed the move last month
and said it was exploring strategic alternatives.
Try Again?
Shiseido Co., the Tokyo-based owner of BareMinerals and
Nars, is a possible suitor for the Elizabeth Arden brand, while
New York-based Coty Inc., the $6.5 billion company that
attempted a takeover of Avon Products Inc. two years ago, could
be interested in the entire company, Wu said.
Representatives for Shiseido didn’t respond to a request
for comment outside normal business hours. Representatives for
Coty also couldn’t be reached.
“I had thought that somebody like Coty would be a better
fit because they could really integrate it and take a lot of the
costs out,” Weiser of B. Riley said. “Coty would like to have
a brand like Elizabeth Arden in its portfolio.”
However, a bid from Coty may be unlikely now that it’s
spending $468 million to repurchase stock, she said.
Big Deals
Seoul-based LG Household, which generates almost all of its
revenue in its home country, said in April that it’s looking at
“big deals” locally and overseas, including one for Elizabeth
Arden. While about 60 percent of Elizabeth Arden’s revenue is in
the U.S., it also sells its products in Canada, Europe,
Australia, South Africa and China.
LG Household’s offer for Elizabeth Arden may be valued at
more than 1 trillion won ($983 million), Maeil Business
Newspaper reported in April, citing an unidentified investment
bank official. LG Household, valued at $7.4 billion, completed
its pre-due diligence and may spend the equivalent of $1.48
billion to purchase the company, according to an article this
week on DealReporter that cited a newspaper in South Korea.
Including Elizabeth Arden’s $368 million of net debt, an
offer at that level would be about 23 times what the company
earned before interest, taxes, depreciation and amortization in
the past 12 months, data compiled by Bloomberg show. That would
be among the most expensive cosmetics deals larger than $500
million, which have gone for a median of 13.5 times Ebitda, the
data show.
Hee-Jung Park, a representative for LG Household, said in
an e-mail earlier this week that while Elizabeth Arden is a
target LG Household is considering, “no specific details have
been determined as of now.”
Park couldn’t be reached for further comment outside of
normal business hours.
Without Buyers
The shares closed at $28.78 yesterday. If the company
doesn’t get acquired, they may trade for only about $30 in the
next year, according to the average of analysts’ estimates
compiled by Bloomberg.
An offer for about $1.5 billion would be at the high end of
the $30- to $41-a-share range that Wells Fargo & Co.’s Joe
Lachky sees as “most realistic,” the analyst wrote in a June
11 report. The multiple appears high because Elizabeth Arden’s
earnings are currently depressed, though it will likely take
several years to get back to peak earnings, he wrote.
Albert Saporta, head of research at Makor Capital Ltd. and
a managing director at AIM&R, said he values Elizabeth Arden at
$35 to $40 a share in a sale. That said, the market is pricing
in a low probability of an offer at the midpoint of that range,
he said in an e-mail.
It’s a “very attractive” situation for investors to bet
on because “the chances of a deal are way higher than that,”
Saporta said. “I think the probability is well above 50
percent.”
For Related News and Information:
Elizabeth Arden Shares Dive After Unexpected Quarterly Loss
NSN N5J4246S972F <GO>
Elizabeth Arden Is Said to Hire Goldman Sachs to Seek Buyers
NSN N4K6E26KLVRC <GO>
LG Household Says It’s Considering Bid to Buy Elizabeth Arden
NSN N4GRIW6K50YG <GO>
Bloomberg Industries - Household Products: BI HHCPG <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories of the day: DTOP <GO>
--With assistance from Joshua Fineman and Jodi Xu in New York
and Shinhye Kang in Seoul.
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Whitney Kisling