P&G Just Made Its Biggest Move So Far Under The Brand Consolidation Program
Leading consumer processed goods company Procter & Gamble (NYSE: PG) has commenced the process to sell some of its beauty brands, according to Bloomberg. [1] The global behemoth has reportedly sent out sale documents for its Wella hair care unit, the fragrance business and certain unnamed cosmetic brands. Bloomberg reports that the combined value of these businesses could be as high as $19 billion, making it P&G’s biggest divestment so far. Potential buyers include cosmetics bigwigs Revlon (NYSE: REV), Unilever (NYSE: UL), Henkel, Kao, and Coty. Neither P&G nor the potential bidders have confirmed these developments.
Rumors of the potential sale of the Wella hair care unit have been floating around since last November, but have not been substantiated by the company. [2] Further, as recently as last month, company insiders claimed that P&G is exploring the sale or IPO of some of its beauty brands. (Read: P&G Mulling Sale or IPO of Some of Its Beauty Brands)
The move is part of Procter & Gamble’s ongoing brand consolidation strategy, under which it aims to divest up to 100 brands by the end of this summer. (Read: P&G Expects Brand Consolidation to be Over by Summer) P&G had stated in the Consumer Analyst Group of New York conference call that it has already identified 35 brands for divestment, leaving another 65 brands to be identified over the next few months. Major divestments under the brand consolidation program so far include the sale of the Duracell battery business to Berkshire Hathaway, and the Camay and Zest soap brands to Unilever.
We have a price estimate of $83 for Procter & Gamble, which is nearly the same as its current market price.
See our complete analysis of Procter & Gamble here
P&G’s Beauty Business Ripe For Divestment
Procter & Gamble’s $20 billion beauty business has been struggling to keep up with rivals like L’Oreal (OTC: LRLCY) and Estee Lauder (NYSE: EL) in recent years. Despite the presence of globally renowned brands like Wella, Olay and Covergirl, revenues from the beauty division suffered a contraction of 2% in fiscal 2013, as well as 2014. The story does not improve on the bottom lines front either. The EBIDTA margin of P&G’s beauty business, already the lowest among all its business segments, is also considerably lower than that of L’Oreal and Estee Lauder.
Given this state of affairs, analysts have long considered P&G’s beauty business as ripe for downsizing. [3] In fact, P&G is not above disposing off multi-billion dollar brands like Wella and Covergirl. The focus of P&G’s brand consolidation program is on identifying and retaining the best performing brands which have the highest potential for revenue expansion and bottom line improvement. For this purpose, the size of any of its brands or businesses is irrelevant if they don’t meet the aforementioned criteria. (Read: Are P&G And Unilever Headed In Opposite Directions?) Now, with the rumored sale of the Wella hair care unit underway, investors will be closely watching to see which will be the next billion-dollar brand to get the ax.
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Notes:- P&G Said to Kick Off Sale of Beauty Brands Including Wella, Bloomberg, April 8, 2015 [↩]
- P&G exploring sale of $7 billion Wella hair care unit, Reuters, November 28, 2014 [↩]
- How much will P&G cut its beauty business?, Cincinnati.com, March 23, 2015 [↩]