P&G Unloads Camay and Zest Brands to Unilever

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PG: Procter & Gamble logo
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Procter & Gamble

In late December, Procter & Gamble (NYSE: PG) announced the sale of its Camay and Zest soap brands to Unilever (NYSE: UL) for an undisclosed amount. It involves the sale of Zest brand outside of North America and the Carribean, and global sale of the Camay brand. The company will also transfer its Talisman manufacturing facility in Mexico to Unilever as part of the deal. [1] The transaction is expected to close by the first half of calendar 2015.

Continuation of P&G’s Brand Consolidation Strategy

The sale is part of P&G’s strategy of shedding its 80-100 non-core brands and diverting focus to the remaining 70-90 powerhouse brands. The remaining top brands account for over 90% of the company’s net sales and 95% of net profit. (Read: P&G’s Brand Divestitures Should Unlock Greater Value)

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Camay and Zest are soap brands that are categorized under P&G’s Skin Care and Makeup sub-segment. The two brands had a combined revenues of $225 million in fiscal 2014, which is just 4% of the Skin Care and Makeup segment revenues. Given the insignificant revenue share of the two brands, it should come as no surprise that P&G chose to divest them. It is worth noting that the company’s coveted billion-dollar club of brands does not include any soap brands.

Skin Care and Makeup segment accounts for 7% of P&G’s total revenues and is part of the broader Beauty division. The company has failed to gain traction in its Skin Care and Makeup segment as revenues remained flat in calendar 2012 and 2013. Since the company derives a majority of its revenue from developed markets and its skin care products are geared towards the premium segment, the slowdown in the developed markets has resulted in poor revenue growth in this division. Consequently, its share in the $82 billion skin care and makeup market has fallen from 8.1% in calendar year 2008 to 7.1% in 2013.

We have a price estimate of about $87 for P&G, which is about 5% lower than its current market price.

Another Step in Unilever’s Long Road to Consolidation in Personal Care Business

In contrast to P&G, Skin and Hair Care is Unilever’s second largest segment and accounted for 26% of the company’s total revenues in calendar 2013. It is behind only the Foods division, which commanded 27% of the total revenues. However, Unilever is actively shifting its focus away from its Foods division and plans to give more attention to its personal care business (Read: Personal Care Companies Shed Weight In 2014). As a result, the Skin and Hair Care segment is set to become Unilever’s driving force in the near future.

P&G’s loss in the skin care market has been Unilever’s gain. In stark contrast to P&G, Unilever derives 57% of its revenues from the emerging markets and its products are predominantly geared towards the mass segment.  These two factors have helped the company withstand the slowdown in developed markets and maintain the growth of its Skin and Hair Care division.

The acquisition of Camay and Zest brands from P&G fits in well with Unilever’s strategy of consolidating its position in the global personal care market. It will add two new names to an already commendable brands portfolio, which includes globally renowned names like Dove, Lux and Lifebuoy. However, whether or not the purchase of Camay and Zest brands pays off for Unilever depends upon the price of the acquisition, which remains undisclosed.

We have a price estimate of about $47 for Unilever, which is about 20% higher than the current market price.

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Notes:
  1. P&G Announces Sale of Camay and Zest Brands to Unilever, P&G Press Release, December 22, 2014 []