By Alexandre Boksenbaum-Granier and Donny Kwok
Paris and Hong Kong - L’Oreal has offered to buy Chinese facial mask maker Magic Holdings International, a move that would put the world’s largest cosmetics group in the lead of the fastest-growing sector in China’s $15 billion (R150bn) skin-care market.
China is the third-biggest market for cosmetics, as well as for Paris-based L’Oreal’s products.
Magic Holdings has the biggest share of the country’s facial mask market, a sector that is expected to grow more than 35 percent in the next two years, exceeding a 27 percent expansion in the overall skin-care market, according to data from consumer research firm Euromonitor.
Face masks have long been part of Chinese beauty rituals and are a popular way of combating pollution, particularly in big cities. Demand for them has been driven lately by a steady increase in the annual disposable income of China’s middle class, in particular among a growing group of consumers termed “metrosexuals” – men who spend lavishly to guard their looks.
The deal marks L’Oreal’s biggest purchase since its 2008 acquisition of Yves Saint Laurent Beaute for e1.15bn (R15.4bn) from French group PPR, on Friday renamed Kering, which still owns the eponymous fashion brand.
L’Oreal’s HK$6.54bn (R8.4bn) takeover offer for Magic Holdings would be a small price to pay to expand in such a high-growth segment, said Summer Wang, a Hong Kong-based analyst at Bocom International investment bank.
“L’Oreal just needs to spend a small amount of money and can take over China’s biggest facial mask player,” Wang said. “Through this deal, it can fast-track its market share in this segment and the valuation is cheap.”
The offer values Magic Holdings at 9.1 times its last fiscal year sales. L’Oreal trades at seven times its 2012 sales, while its acquisition of YSL Beaute valued it at 1.8 times sales.
Magic Holdings made sales of e150 million in 2012, up 29 percent on the previous year.
China’s cosmetics market is expected to grow 63 percent for the five years to 2015, compared with flat growth for second-ranked Japan, according to Euromonitor.
In a joint statement, Magic Holdings chairman Stephen Tang welcomed the L’Oreal offer. Shares in Magic Holdings surged as much as 21 percent to an all-time high of HK$6.10 on Friday, in a broader market that was flat.
The deal marks the French group’s return to the acquisition trail in the region, having bought Chinese skin-care brand Mininurse in 2003 and the following year Yue Sai, a cosmetics brand founded by a Chinese-American television presenter.
L’Oreal said six that key shareholders, representing 62.3 percent of equity, supported the offer but the deal needed to be approved by the Chinese Ministry of Commerce.
Magic Holdings, which has a market value of $676m, had 288 distributors at the end of last year, up from 261 in June last year.
The company also expanded into e-commerce this year after buying an online distributor in May, which would give L’Oreal greater access to China’s booming online retail market.
L’Oreal’s offer represents a 25 percent premium to Magic Holding’s last closing price before trading in the shares was suspended last Monday to prevent speculation.
The deal will be financed from L’Oreal’s cash reserves and a e650m credit facility from BNP Paribas. – Reuters