NEW YORK —Aiming to debunk rumors that Colgate-Palmolive is talking with Unilever about a deal, company president and chief executive officer Ian Cook told analysts during its second-quarter conference call that there are “absolutely no conversations” with Unilever. However, it is likely that such speculation will remain to some degree, as some industry observers believe that bolstering Colgate’s portfolio into such areas as skin and hair makes strategic sense.
The industry was buzzing last month as rumor spread that Colgate and Unilever were discussing an acquisition—a move that has been long expected by some, and is seen as one that makes sense.
“It has long been believed that Unilever would like to acquire Colgate someday, and that there would be substantial cost synergies, especially in Latin America, where both companies have strong market positions,” stated Oppenheimer analyst Linda Bolton Weiser in a research note. “The reverse situation—that Colgate acquire Unilever—is less expected. Unilever’s annual sales are $50 billion; Colgate’s are $13 billion. Unilever’s equity market value, however, is only $52 billion, compared with Colgate’s $34 billion.”
Some industry observers believe that such a deal would make sense for Colgate. Colgate’s oral care business is generating 50 percent of its top-line growth and, while it is expected that Colgate will continue gaining share, bolstering its foothold in other personal care segments—such as skin and hair—is seen as a positive.
BY THE NUMBERS
$50bil.Unilever’s annual sales
$50bil.Unilever’s annual sales
“We believe that Colgate is attempting to tap into this opportunity organically by extending Palmolive outside body cleansing—like Unilever’s Dove. If Palmolive doesn’t prove to be extendable enough, as suggested by Colgate’s modest success in diversifying in places like China, we’d expected Colgate to consider acquisitions of skin or hair care franchises that can potentially work in emerging markets (i.e. Latin America and Asia),” stated Morgan Stanley analyst William Pecoriello.
Weiser agrees, suggesting that, if a deal were to occur, Colgate would buy pieces of Unilever or just personal care, which includes such brands as Sunsilk, Pond’s, Dove, Axe, Rexona, Degree and Vaseline. Unilever is a leader in laundry detergent, but Colgate has been exiting that segment through divestitures. Overlapping businesses would be deodorants, soap, oral care and hair care in certain markets; however, it would give Colgate an entry into the lucrative skin care category.
“We believe Colgate would have to pay at least $35 billion for Unilever’s personal care business, which has an operating margin of about 17 percent (Colgate’s is nearly 21 percent),” Weiser stated.
Another fact to consider is that Colgate has relatively new chief executive officers. Some industry observers are speculating that Cook, who officially took the helm July 1, may be more open than his predecessor, Reuben Mark, to a strategic acquisition. However, Mark remains chairman for 18 months.
“Mark always showed he was disciplined on acquisition valuations, in recent years passing on both Gillette and Pfizer’s OTC health care business (including Listerine), which both sold at very high valuations,” Weiser added.
But for now, it appears as though Cook also has a tight grip on the company’s wallet.