Natura Cosmeticos SA entered exclusive talks to acquire British make-up seller Body Shop from L’Oreal SA with an offer that values the UK chain at 1 billion euros (US$1.1 billion).
An acquisition by Natura would represent a major expansion for the Brazilian cosmetics company, which originated as a direct-sales business like Mary Kay or Avon and expanded its retail operations with the US$70 million purchase of Australia’s Aesop in 2013.
The deal would give Natura new sales channels and more exposure to developed markets, although Body Shop is in “great need of a turnaround” and would require a lot of work, Eleven Financial Research analyst Giovana Scottini said.
“If everything works well, Natura will become a global cosmetics player, which is a whole different animal,” Scottini said. “This might require massive investments in marketing, which is another concern.”
Sao Paulo-based Natura is being advised by UBS and has already secured a financing commitment for the deal, a press official said.
Natura is studying issuing US dollar or euro notes to fund the acquisition and is not expecting a tough process to win approval from Brazil’s anti-trust agency, the press official said.
L’Oreal is being advised by Lazard.
The transaction with Natura would open a new chapter for the Body Shop, which was founded in 1976 by British entrepreneur Anita Roddick and has spent the past decade under the ownership of L’Oreal. For much of that period, the 3,000-store business struggled to contend with tough competition, leading L’Oreal to announce in February that it was exploring its options.
For L’Oreal, the planned deal is “good news given the under performance of the division in past years,” Raymond James analyst Hermine de Bentzmann said in a note.
The Body Shop operates across 66 countries. Its operating profit fell 38 percent to 33.8 million euros last year.
Natura is coming out of a tumultuous year that saw the exit of chief executive officer Roberto Oliveira de Lima, whose attempt to raise prices backfired. Sales rose 0.2 percent last year to 7.91 billion Brazilian reais (US$2.43 billion). The Body Shop’s total sales, including e-commerce and franchises, fell 2 percent to 1.48 billion euros.
Natura has already lined up financing for the 1 billion euros acquisition, chief financial officer Jose Roberto Lettiere said on a conference call with journalists on Friday.
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