Deal Frees Marketers to Be More Aggressive in Personal-Care Space

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CINCINNATI ( — Alberto-Culver Co. is spinning off its Sally Beauty and other retail operations to salon heavyweight Regis Corp. in a $2.6 billion deal.
The sales of Sally Beauty is likely to make Alberto-Culver a much more attractive takeover target, according to analysts.

The companies said the pact will allow Alberto-Culver to become more acquisitive under new top management and Sally Beauty to become a more aggressive marketer. But the deal also could make what’s left of Alberto-Culver, a $1.4 billion marketer mainly of hair and skin-care products, much more attractive takeover bait, according to some analysts and industry watchers.

Change in management
As part of the spinoff of the retail businesses to Regis, longtime Alberto President-CEO Howard B. Bernick will step down and become non-executive chairman of Regis, the nation’s largest hair salon chain. Mr. Bernick’s wife, Carol Lavin Bernick, a member of the Lavin family that controls the publicly held Alberto-Culver, will stay on as executive chairman. V. James Marino, who currently heads Alberto-Culver’s personal-care business, will become president-CEO of the company.

With three brands that have been gaining market share in recent years -- VO5, Tresemme and St. Ives -- and a fourth, Nexxus, on the cusp of a national professional-to-mass conversion this month, what’s left of Alberto-Culver is smaller but possibly more valuable than the $2.25 billion retail operation it’s spinning off.

In a research note, Deutsche Bank analyst William Schmitz said the remaining Alberto-Culver personal-care business is “ultimately a good candidate for acquisition,” but he said that’s unlikely to happen for at least two years because of tax considerations.

U.K.-based Industry consultant Colin Hession agreed in an e-mail that what’s left of Alberto-Culver could become an attractive target and added that the agreement makes Regis “the Wal-Mart of professional hair care.”

$5 billion retail operation
The deal combines Regis’ nearly 11,000 salons under names such as Supercuts, Regis, Trade Secret, Vidal Sassoon and SmartStyle with more than 2,400 Sally Beauty stores and more than 800 Beauty Systems Group outlets. Combined sales could reach $5 billion within a year, said Regis Chairman-CEO Paul D. Finkelstein in a conference call.

“There were inherent conflicts between Sally Beauty stores and Alberto-Culver’s consumer product division’s customers,” Mr. Finkelstein said, referring to such retail behemoths as Wal-Mart Stores, Target and Walgreens. “This transaction fixes those problems. ... Sally can be far more aggressive in advertising and marketing as it will have eliminated its conflict.”

Sally Beauty advertising to date, which Mr. Bernick characterized as being “in test,” has been limited to spot buys and is handled by A. Eicoff, Chicago.

Agencies for Regis brands include Omnicom Group’s Element 79 and independent Hot Dish Advertising, Minneapolis.

The merger furthers a trend toward consolidation on both sides of the personal-care industry. “The acceleration of consolidation is driven by the need for countervailing power for both suppliers and retailers,” Mr. Finkelstein said.

Battling P&G
Alberto-Culver’s Beauty Systems Group in 2004 lost business from P&G’s Wella professional division when P&G opted for using its own direct-sales force, hiring away some of the group’s sales reps last year as it staffed up for that transition, Mr. Bernick said in past conference calls. Once the deal closes, if P&G continues to thwart BSG, it will find itself at odds with a unit of Regis, the biggest U.S. customer for professional hair-care products.

The deal also gives Regis new clout and capability to combat diversion of professional products to mass channels, which has seen such retailers as Target and Wal-Mart -- the latter host to hundreds of Regis salons -- build large sections of such brands as L’Oreal’s Matrix and P&G’s Sebastian. Mr. Finkelstein said Regis may step up efforts to launch and distribute its own brands if diversion can’t be curbed.

Mr. Bernick said the deal will leave Alberto-Culver debt free, with a market cap of $2 billion. That could leave room for acquisitions of up to $300 million, more than double what the company has paid up to now. Adding a skin-care brand, he said, is the company’s top priority.

Major impact on hair care
Though relatively small, Alberto is having a mighty impact on hair care this year with the mass conversion of Nexxus. Retail executives see the 30-plus-item launch as the biggest news among the overall 200 new items squeezing their way into roughly 2,500 hair-care slots in hair-care aisles later this month and early next month.

But the market didn’t appreciate Alberto-Culver’s takeaway in the deal, with its stock sliding $1.49 or 3.1% to $46.49. Despite long-term potential for acquisition, Mr. Schmitz said the stock was fully valued and downgraded the company to a hold.

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