Unilever Continues Expansion of Its Personal Care Portfolio With Acquisition of REN Skincare

UL: Unilever logo

Unilever (NYSE: UL) announced on Monday that it has agreed to purchase the British brand, REN Skincare, for an undisclosed sum. The move furthers Unilever’s bid to strengthen its presence in the premium personal care segment, even as it moves away from the stagnating foods business. The transaction is expected to close in May 2015, subject to regulatory approvals. [1]

REN Skincare, a niche brand that specializes in natural ingredients, has pioneered a new type of high performance skincare. It had sales of $62.6 million in 2013, [2] 70% of which were derived from 50 countries. [3] This underscores REN’s global reach despite a relatively small scale of operations.

We have a price estimate of $40 for Unilever, which is about 10% lower than its current market price.

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See our complete analysis of Unilever here

Acquisition Unlikely to Shift The Needle Meaningfully

Unilever is gradually moving away from its underperforming foods business and is planning to expand its personal care business through acquisitions. [4] The company’s shifting priority is evident from the fact that the revenue share of its Foods unit has fallen from 35% in 2008 to 26% in 2014, while share of its Personal Care unit has grown from 28% to 37% over the same period. (Read: Personal Care Companies Shed Weight In 2014) As part of this strategy, Unilever recently acquired Camay and Zest soap brands from Procter & Gamble (NYSE: PG). (Read: P&G Unloads Camay and Zest Brands to Unilever)

However, REN’s revenue of $62.6 million [3] pales in comparison to Unilever’s revenues from its personal care business, which amounted to $20.9 billion in 2014. The personal care segment is Unilever’s largest business, yet the company is struggling to revive its growth amidst a slowdown in most major emerging markets. It is going to take a far bigger acquisition for Unilever to revive its flailing personal care segment through inorganic expansion. Therefore, Unilever’s acquisition of REN Skincare is a positive but small step towards consolidation of the former’s position in the global personal care market.

Investors Frustrated With Pace of Change at Unilever

Unilever’s latest announcement follows reports of a survey that brought to light investors’ frustration with the pace of execution of Unilever’s strategy. [5] Unilever’s CEO Paul Polman has repeatedly stressed his intention to move the company away from the foods business and towards the premium personal care business. [4] However, a recent survey of 100 investors by Bernstein Research showed that many investors are frustrated with the perceived lack of momentum in executing Mr. Polman’s vision. [5]

In light of the above, it is unlikely that this minor bolt-on acquisition will be enough to appease investors’ calls for a faster shift of focus to the personal care segment.

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  1. Unilever to acquire REN Skincare, Unilever Press Release, March 2, 2015 []
  2. Based on average GBP – USD exchange rate of $1.5643 in 2013 []
  3. Unilever to buy REN skincare brand, Financial Times, March 2, 2015 [] []
  4. Unilever CEO says eyeing higher-priced personal care brands, Reuters, 4 December 2014 [] []
  5. Frustrated Unilever investors call for shake-up, Financial Times, March 1, 2015 [] []