Management of German Hair-Care Marketer Opposed to Sale

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CINCINNATI (AdAge.com) -- Procter & Gamble Co. has reached an agreement to acquire 77.6% of shares of German hair care and fragrance marketer Wella and tendered an offer for remaining shares in a takeover apparently unwelcome by Wella management.

P&G would pay a combined $7 billion in cash and debt assumption, making the deal P&G's biggest ever, ahead of its $5 billion acquisition of Clairol from Bristol-Myers Squibb Co. in November 2001. P&G's offer represents a 22% premium to Wella's $81 per share Monday closing price, which has already been boosted by weeks of takeover speculation.

While the Stoeher family controls Wella, P&G's offer has not yet been embraced by Wella's management. In a statement, Wella's executive board said it would offer an opinion on the possible consequences for the company and its employees and publish findings pursuant to German securities regulations.

Can succeed independently
"From a business perspective

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the announced transaction is not a necessary step," Wella management said in a statement. "Wella has previously communicated clearly defined growth targets though 2005 and remains convinced that the underlying strategy could be executed and that the company would continue to demonstrate strong growth were it to remain independent. The Executive Board of Wella AG respects the decision of the family shareholders, but adds that the question of a sale is beyond the Executive Board's sphere of influence."

The Wella deal marks the latest of several efforts by P&G since 1985 to transform itself into more of a beauty and personal care company. Wella represents a potential boon for P&G's global agencies, including Grey Global Group and Publicis Groupe's Saatchi & Saatchi, Leo Burnett Co. and Kaplan Thaler Group, each of which have existing key accounts in P&G's beauty care businesses.

$3.7 billion in sales
With sales of $3.7 billion, Wella is more than twice as large as Clairol, which had sales of $1.6 billion when P&G bought it. But unlike Clairol, Wella gets 47% of its business from the professional salon channel, where P&G has little presence currently; retail hair care makes up 29% of sales and the remaining 24% is from fragrance. Wella's fine fragrance brands, including Gucci and Escada, would make P&G much more of a player in a $20 billion global business hit hard by recession in recent years.

About 60% of Wella sales are in Europe, giving P&G beauty-care scale in markets where it has been a substantial underdog to L'Oreal. Wella also has a relatively strong business in Japan, with a relatively light North American presence, though P&G executives have been anticipating a stepped-up Wella hair care effort in North America for several years.

Double-digit growth
With double-digit sales growth over the past three years, Wella also is growing more than twice as fast as the 5% rate for global beauty care and well ahead of P&G's performance in recent years.

P&G consumer products rival Henkel, which announced last week it had bought a 6.86% stake, could create at least temporary obstacles to transfer of control of the company. At worst, Henkel comes away from the deal with at least a $100 million gain on its investment.

In its statement, P&G said it expects to leave Wella's professional hair care business "largely intact" but expects to generate annual cost savings of more than $300 million by 2006, apparently from elsewhere in the company.

Other takeover talks
Though P&G's interest had been rumored for weeks, the offer came as a surprise to some U.S. analysts, who believed P&G's apparent interest might be a ploy to soften up shareholders of Beiersdorf, another German personal care marketer. P&G's takeover talks with Beiersdorf apparently bogged down last year.

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