German consumer goods group Henkel is aiming to strengthen its cosmetic and toiletries operations with the purchase of Gillette's Right Guard deodorant business in the US, a deal that forms part of requirements to comply with US monopoly laws following Gillette's merger with P&G last year.
The acquisition comes as Henkel releases fourth quarter and full-year financial results that show its cosmetics and toiletries business is performing considerably weaker than its other businesses, which includie laundery and homecare, adhesives and a technologies division.
The Dial Corporation, a US division of Henkel, signed an agreement with P&G that also acquires two other body care brands - Soft & Dri and Dry Idea. The purchase price for the three brands amounted to $420 million, while sales during 2005 totalled $275 million.
Henkel said that the deal was still subject to customary approval from anti-trust authorities and should be finalised by the end of the first quarter for this year.
Analysts at Landesbank Rheinland-Pfalz said they considered the sale makes good strategic sense, adding that the price was reasonable and that it will eventually strengthen Henkel's position in regions where it is not well represented.
"These leading brands are a perfect fit to our core business body care and will further increase growth and profitability of this business," said Hans Van Bylen executive vice president of Henkel Cosmetics/Toiletries.
Van Bylen added that the acquisition would place Henkel as the number three player in the US deodorants market and would serve to strengthen the Dial portfolio.
Coinciding with news of the acquisition, Henkel has also released strong group financial results.
Overall group sales rose 13 per cent to reach €11.97m, with organic sales growth coming in at 3.5 per cent - which takes into account divestments and acquisitions. Operating profit grew by 16.7 per cent to reach €1.16m.
However, looking at the results for the company's cosmetics and toiletries division, sales were clearly outperformed by the company's other divisions, a situation it is hoping to change with the new deodorant acquisistions.
The division reported that sales grew 6.2 per to €2.62m, growth that was fuelled by the domestic market, Eastern Europe, Latin America and the Middle East.
However, market development in the Asia Pacific region, where the company is still a relatively small and new player, was reported to be 'sluggish'.
Turning to specific product segments, the company reported that the re-launch of the Fa body care line had showed highly promising results, whilst numerous skin care launches under the international Diadermine brand also looked strong.
Looking ahead to the rest of 2006, Henkel is predicting organic sales growth of three to four per cent, in line with the growth experienced in 2005. However, it is also expected that sales growth and the overall performance of its cosmetics and toiletries division should be considerably boosted by the acquisition of the US deodorant brands.