London: Consumer goods group Unilever is to buy Concern Kalina , Russia’s biggest cosmetics group, for €500 million ($685 million), overtaking L’Oreal to become No. 2 in personal care products in Russia.
The deal fits in with Unilever’s strategy to expand into fast-growing emerging markets such as Russia where the personal care market is growing over 10% annually, and puts it just behind US-based rival Procter & Gamble.
The Anglo-Dutch group is looking to offset sluggish European and US markets by investing in growth regions and aims to see three-quarters of its turnover from emerging markets by 2020 from around 54% currently.
File photo Bloomberg
The deal will give Unilever access to Kalina’s widespread distribution and the benefits of its good track record on product innovation, and is the third medium-sized personal care acquisition in a year after Alberto Culver and Sara Lee.
Unilever, the world’s No. 3 food and consumer goods group, will gain Russian skin and haircare brands like Pure Line, Black Pearl and Silky Hands at the lower, or value, end of the market to add to its own Dove, Sunsilk, Timotei and Clear brands.
Personal care is Unilever’s fastest-growing category and accounted for more than 30% of its €44.3 billion turnover in 2010, with strong positions in emerging markets such as India, Brazil and China.
Kalina’s forecast 2011 sales are €303 million, largely in Russia, Ukraine and Kazakhstan.
The move will double Unilever’s non-food business in Russia.
Around two thirds of its annual sales of €800 million in Russia are in food.
“The deal makes little difference to Unilever’s earnings or growth rates but looks a very tidy bridgehead into one of the BRIC (Brazil, Russia, India and China) economies where thus far the group has little presence,” said analyst Charlie Mills at brokers Credit Suisse.
He said personal care was a key priority for Unilever and added that the deal was the most compelling of the series of three recent acquisitions.
Kalina is based in the Ural city of Ekaterinburg some 1,700 kilometres east of Moscow, where its manufacturing plant is situated. It employs around 1,900 staff.
“This will transform Unilever’s personal care business in Russia ... It will also strengthen and re-balance Unilever’s portfolio and competitive position in Russia, an emerging market with considerable potential and one of our priority countries,” chief executive Paul Polman said in a statement.
Unilever is initially buying 82% of Kalina’s shares from two major shareholders and hopes to buy out other shareholders in 2012. The whole deal implies an enterprise value for all of Kalina of around €604 million.
Subject to obtaining regulatory approval, the initial deal for the 82% stake is expected to be completed by the end of 2011, Unilever said.
Shares in Unilever, which have risen 7% in the last month, were the top riser in the FTSE 100 index showing a 3.4% rise to 2,127 pence by 4.20 pm, while Kalina shares jumped 40% to 3,077.2 roubles.
In the deal, Kalina was advised by UBS and Unilever by Goldman Sachs.