Had Planned to Join Beauty-Care Distribution Business With Regis

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CINCINNATI ( -- Alberto-Culver Co. today withdrew its recommendation that shareholders approve a $2.6 billion deal to spin off its beauty products distribution business with Regis Corp., following Regis’ announcement late last month that first-quarter earnings will disappoint.
In the wake of the deal's collapse, Alberto-Culver remains the largest distributor of hair-care products to beauty salons.
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Salon brands
The move throws a wrench into Regis’ plans to use newfound muscle produced by the deal to clamp down on rampant diversion of professional hair-care brands into mass outlets. If the deal falls through, it also leaves Alberto-Culver owning the largest distributor of products to salons in the midst of its $100 million effort to end Nexxus’ “exclusive” status with salons and sell the brand as a legitimate salon product through mass retailers.

In a statement, Alberto-Culver said its board decided unanimously to no longer support the deal in light of two consecutive quarterly earnings disappointments by Regis since the agreement was announced in January. Alberto-Culver said the board reached the decision after attempting to alter terms of the exchange, under which Alberto shareholders receive stock in the combination of Regis with Alberto-Culver’s Sally Beauty and Beauty Systems Group retail and distribution units.

'Operating and board-governance matters'
Alberto-Culver also said it had failed in attempts to clarify “operating and board-governance matters” related to Regis’ earnings disappointments.

Under terms of the deal between the companies, Alberto-Culver President-CEO Howard B. Bernick was to step down from that post and become non-executive chairman of Regis, the nation’s largest hair salon operator. Mr. Bernick’s wife, Carol Lavin Bernick, a member of the Lavin family, which owns 12% of the company’s stock and has controlling interest in the publicly held company, was to stay on as executive chairman. V. James Marino, who currently heads Alberto-Culver’s personal-care business, was to become president-CEO of Alberto-Culver.

Spokespeople for Alberto-Culver and Regis could not immediately be reached for comment on how unwinding of the deal would affect the management structure at Alberto or plans of Regis.

Impact of marital troubles
Mr. and Mrs. Bernick had separated prior to the announcement of the Regis deal, the Chicago Tribune reported in January, leading to speculation that marital troubles led to breakup of Alberto-Culver. The spokesman for Alberto-Culver denied that in February.

“This is a personal matter in the Bernicks’ lives that has not had an effect on the company,” he said.

Regis CEO Paul Finkelstein told Advertising Age in February that he would use the newfound clout of also owning the largest professional hair-care distribution system to help crack down on diversion of salon brands to mass retailers by launching his own private-label salon brands if necessary. In the wake of the deal, he said he’d been called by top executives at some professional brand marketers vowing to step up their efforts to crack down on diversion.

Regis said in a separate statement late today that it will terminate the merger agreement. Alberto's move will force it to pay a $50 million breakup fee to Regis.

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