) recently received regulatory approval from the European Union for
the acquisition of Sara Lee's (
) Personal Care and European Laundry business for $1.87 billion.
Unilever competes with a hosts of companies in the food and
personal care segments like
), Proctor & Gamble (
) and Estee Lauder (EL) Sara Lee and Nestle (NSRGY).
The EU will require Sara Lee to sell its Sanex deodorant brand
to address antitrust concerns gives its strong portfolio of Axe and
Rexona deodorant brands. The deal also brings with it, regional
product category leaders such as Biotex in Laundry, Zwitsal and
Fissan in Baby Care, and Prodent and Zendium and Oral Care.
The Trefis price estimate is $38, which is around 23% ahead of
the current market price.
We estimate that food and consumer products contribute roughly
half of Unilever's value while home and personal care products
account for the remainder of items sold.
Expansion of Unilever's products to a wider price range
Sara Lee's Radox, Duschdas and Neutral brands would complement
Unilever's Dove, Axe and Rexona brands at a lower price point. We
believe these acquired brands appeal to different consumers than
its incumbent brands and so do not pose much of a threat in terms
of cannibalization. With the acquisition, Unilever is building out
its brand portfolio to appeal to a wider audience in more markets
across the globe.
We believe this helps in the following ways:
- Expansion into products across price bands makes Unilever
more immune to macroeconomic downturns such as the one witnessed
- During recessionary times, characterized by rising
unemployment levels and reduced disposable income levels,
consumers substitute personal care products with lower-priced
brands and being present across price brands helps maintain
volumes and consequently market share.
- Lower-priced brands are also better equipped to compete with
private labels and regional players, thereby gaining market share
in the process.
Leads to Market Share Gains
Acquisition of Sara Lee's Body Care and European Laundry
business strengthens Unilever's market share in key European
markets such as Britain, Germany, France, Spain, Italy, Denmark and
How Does Europe Fit In?
- The global household and personal care industry is expected
to grow at over 3% YOY. Much of this growth (and that too in
double digits!) is expected to come from emerging markets in Asia
and Latin America on account of rising disposable income levels
and high population growth rate.
- Nevertheless, Europe continues to be a much larger market for
household and personal care products contributing to over 40% of
- Despite a low population growth rate and little scope for
volume growth, the mature markets of US and Europe continue to
grow primarily by offering value-added features that justify a
- The acquisition helps Unilever gain market share in a
significant market such as Europe. We expect the sheer size of
European household and personal care market to compensate for the
low growth rates.
While the acquisition is expected to lead to an immediate gain
in Unilever's market share, much of the value from the acquisition
would be unlocked when synergies in the operations are realized
over the long term. We believe the EBITDA Margins could suffer as
the businesses are integrated and product mix shifts (over
2010-12), but this should recover as the company finds synergies
and scale help
You can see our detailed analysis of
$38 Trefis price estimate of Unilever's stock