L’Oréal targets China growth with $843m bid for skin care firm


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L’Oréal targets China growth with $843m bid for skin care firm

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Cosmetics giant L’Oréal has offered to buy Chinese skin care company Magic Holdings International for HK$6.5bn ($843m) in cash said in a joint statement, as the French firm looks to take advantage of the growing luxury market in China; where sales growth is outpacing the company’s total.

Magic Holdings, based in Guangzhou, is responsible for the top-selling facial mask brand in China, where beauty and personal care product sales will expand 8 per cent to $34 billion this year, according to Euromonitor.

“China is still a 1.3 billion population market and personal growth is growing,”​ said Norman Chan, the Hong Kong-based head of investment at Calibre Asset Management Ltd in Business Week​.

“The faster growing markets are the low- to mid-end, which the domestic companies would have a better foothold.”

Enhancing presence

L’Oreal has been present in China for over 16 years and recently reported first-half sales that rose 5.4 per cent in the region. L’Oreal’s first-half revenue in China climbed 11 per cent on a similar basis, the company said in July.

Magic sells MG-branded beauty products such as facial masks with snail essence, and is the facial mask industry leader in China with a 26.4 per cent share as of 2012.

Facial masks are one of the fastest-growing areas in China’s beauty market, with “very promising development prospects,” L’Oreal said in a statement.

Magic has 288 distributors in 32 provinces and regions in China, according to its website; allowing L’Oréal to accelerate the growth of its own brands in China through a greater distribution reach.

On board

Since the announcement, it is understood that Baring Private Equity Asia is cashing out of its investment in Magic, following the L’Oréal bid.

Baring Private Equity, which has more than $5 billion under management, is among the shareholders backing the offer. It has a 20.9 per cent stake in Magic, according to Factset data, and first invested in the company in 2012.

The acquisition is expected to be funded by L’Oréal’s internal resources and still needs approval from China's Ministry of Commerce.

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