The Cosmetic Center rejects Perfumania merger offer, Perfumania persisting.
This article was originally published in The Rose Sheet
Executive Summary
PERFUMANIA STILL INTENT ON MERGER WITH COSMETIC CENTER despite being rejected on Aug. 7. Miami, FL-based Perfumania said it is looking into different merger/acquisition possibilities with Savage, MD-based The Cosmetic Center. Perfumania noted, however, that it does not plan to raise its $13 per share bid.
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PERFUMANIA STILL INTENT ON MERGER WITH COSMETIC CENTER despite being rejected on Aug. 7. Miami, FL-based Perfumania said it is looking into different merger/acquisition possibilities with Savage, MD-based The Cosmetic Center. Perfumania noted, however, that it does not plan to raise its $13 per share bid. In rebuffing Perfumania's bid, The Cosmetic Center called the unsolicited offer "unacceptable." The Cosmetic Center's stock closed on Aug. 7 with a 1-1/4 gain to 9-1/4. The stock closed the week of Aug. 7-11 at 9-3/4. A merger with The Cosmetic Center would fit with Perfumania's plans to expand into the cosmetics super-store arena, according to the company. The fragrance retailer said it is working on developing the concept of a Perfumania Plus retail unit, which would sell cosmetics, treatment and haircare lines as well as fragrances. In addition to a larger merchandise offering, the Perfumania Plus stores would be approximately 5,000 square feet as opposed to the 1,000-1,200 square foot size of most existing Perfumanias. Perfumania currently has 184 retail outlets. A merger with The Cosmetic Center would help Perfumania expand that stable and extend its geographic reach to include The Cosmetic Center's 71 stores throughout southern and mid-Atlantic metropolitan areas. Perfumania noted that under a merger agreement, all The Cosmetic Center stores would maintain their name and current formats. The Cosmetic Center would operate as a Perfumania subsidiary, the firm added. The Cosmetic Center stores sell brand name prestige and mass-merchandise cosmetics and beauty aids. The Cosmetic Center's recent expansion into the salon business also holds some attraction for Perfumania. In its first-quarter report, The Cosmetic Center said it plans to open hair salons in "all existing stores...where the leases will permit." This project, the company said, is expected to cost about $1.2 mil. Perfumania's merger offer comes at a time when The Cosmetic Center seems particularly vulnerable. The proposal occured just one week after Mark Weinstein took over as chairman of The Cosmetic Center following the death on July 8 of his father, Louis Weinstein. The Cosmetic Center President Ben Kovalsky will take on the position of CEO, which was held by the younger Weinstein before his father's death. The Weinstein family owns a controlling (roughly 51%) stake in the firm. In addition, The Cosmetic Center recently dipped into the red, which the firm attributes to its rapid store expansion plan and the installation of hair salons. Following four straight quarters of declining net income, The Cosmetic Center reported a net loss of $190,000 for the three months ended June 30, versus net earnings of $877,000 a year ago. During the quarter, the firm's sales increased 10.4% to $31.3 mil. Noting that 19, or 26.8%, of the firm's 71 stores have been operating for less than 13 months, The Cosmetic Center pointed out that "new stores typically do not generate the sales and profit volume that a more mature store generates." In addition, the company cited increased interest and operating costs as contributors to the third-quarter figures. |