Unilever is putting its money where its mouth isn’t. The global consumer goods company talks a lot about increasing its presence in emerging markets, which already account for half of sales. But on Monday it agreed to spend $3.7bn on Alberto Culver, which mostly sells its shampoo and creams in the US and the UK – sluggish markets at best.
Unilever wants to beef up its market share in hair care. Its target has enjoyed strong growth there, thanks to the salon-in-the-supermarket brand Tresemmé. Unilever’s personal care sector is also growing fast: sales rose 16 per cent in the first half of this year, about twice as fast as ice cream and home care.
The price is more salon than supermarket, at almost 15 times earnings before interest, tax, depreciation and amortisation for the past fiscal year to June. Analysts reckon on at least $160m in annual cost synergies. Add those to Alberto’s expected $260m operating profit next year, take off tax, and earnings should rise by about $290m. In other words, the acquisition will deliver an initial return of about 8 per cent, below Bloomberg’s estimate for Alberto’s weighted average cost of capital of 9.3 per cent. Of course, the return could improve over time.