L'Oréal's planned acquisition of British retailer The Body Shop adds a "masstige" retail element to the French firm's portfolio, while giving The Body Shop access to L'Oréal's extensive research and development capabilities, the firms said March 17.

Pending regulatory approval, L'Oréal plans to purchase The Body Shop's 2,085 dedicated retail outlets in 54 countries for £652 mil. ($1.15 bil.) in cash, according to the companies.

The sale price represents a premium of 34.2% over The Body Shop's closing mid market price in February prior to speculation of the acquisition, the firms noted.

According to terms of the agreement, The Body Shop will continue to be managed as a standalone entity. No head count reductions are planned, L'Oréal said. Senior management will remain in place, with Executive Chairman Adrian Bellamy and CEO Peter Saunders reporting to L'Oréal CEO-Designate Jean-Paul Agon.

More than 40% of The Body Shop's shareholders have already supported the deal, the UK retailer said, noting it did consider other potential bidders.

L'Oréal indicated in February that it was considering a purchase of the beauty retailer, in line with its growth strategy (¹ 'The Rose Sheet' Feb. 27, 2006, In Brief).

The acquisition would provide a number of advantages to both companies, L'Oréal said, including the ability to combine L'Oréal's "expertise and knowledge of international markets with The Body Shop's distinct culture and values."

L'Oréal's "worldwide perspective would complement the Body Shop's distribution expertise," and L'Oréal's product technology and marketing know-how will enhance The Body Shop's product offerings, the firms added.

For L'Oréal, the acquisition of a naturally-positioned retailer further diversifies its portfolio, which includes only a few standalone retailers, among them Shu Uemura and Kiehl's.

L'Oréal purchased family-owned Kiehl's in 2000, intending to expand its distribution and increase product development (² Also see "L'Oreal Kiehl's Acquisition Marks Entry Into Niche Beauty Market" - HBW Insight, 24 April, 2000., p. 3).

For The Body Shop, the deal will help the company gain knowledge into shop-in-shop department store retailing formats, according to Saunders.

"They operate in many department stores, whereas we operate in very few, and I think we can learn a lot from that," Saunders said. "They're in countries that we're not in. We're not in Latin America or South America. They clearly have strong positions there. And so I'm sure our entry into those parts of the world would be greatly enhanced," he added.

Although L'Oréal's top priority is growing The Body Shop, it does not plan to change the retailer's mantra of social and environmental responsibility, the firm said.

Addressing concerns over how the company's values could be impacted under the new ownership, The Body Shop founder Dame Anita Roddick said the firm's values are its "DNA," and that customers, suppliers and company employees will not permit changes in that area.

Further, she noted that L'Oréal respects those values. "I think this company has enormous regard and enormous respect on [our] areas, and there's only one area we challenge," she said, referring to animal testing. "They have a great statement about what they're doing on the issue of animal testing, or what they're trying to do. And I'm a great believer in any proximate solution to problems," she added.

Roddick will work alongside L'Oréal as a consultant to The Body Shop. In particular, she will shepherd the firm through the retailer's community trade initiative, which involves working with family farmers and women's cooperatives in 35 countries for ingredients that go into The Body Shop products.

L'Oréal expects the acquisition to be EPS neutral in the financial year to Dec. 31, 2006, and EPS accretive thereafter, the firm noted.

Roddick, who with her family owns about 18% of The Body Shop, founded the firm in 1976. The company posted revenues of £419 mil. and retail sales in excess of £700 mil. in the year ending Feb. 26, 2005, according to The Body Shop.

- Eileen Francis

L’Oréal Plans To Acquire The Body Shop In $1.15 Bil. Deal

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