L'Oreal's Soft Sheen, Carson Merge Into Ethnic Beauty Division
This article was originally published in The Rose Sheet
Executive Summary
L'Oreal USA's Soft Sheen ethnic hair care division will merge with newly acquired Carson to form an "ethnic beauty headquarters" based in Chicago, L'Oreal (formerly Cosmair) announced Aug. 23. The move follows the U.S. government's approval of the merger between the companies.
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L'Oreal USA's Soft Sheen ethnic hair care division will merge with newly acquired Carson to form an "ethnic beauty headquarters" based in Chicago, L'Oreal (formerly Cosmair) announced Aug. 23. The move follows the U.S. government's approval of the merger between the companies. "Right now, we are analyzing the organizations' structures and looking at those things carefully [to] figure out what we look like" for the future, newly named L'Oreal Ethnic Division President Teri Gardner said. Gardner will be joined by Carson CEO and President Malcolm Yesner, who will move to Chicago to become exec VP of global business development of the L'Oreal ethnic division. The creation of a new business "signals the desire for L'Oreal USA...to make a statement to our customers that we are here, we have got the best products, the best people and we are going forward," Gardner maintained. L'Oreal's $250 mil. move to purchase Carson Products in February gave the cosmetics giant a presumptive leading share in the ethnic hair care category (1 (Also see "Cosmair/Carson Leads U.S. Ethnic Hair Care Category With 33% Share" - HBW Insight, 6 Mar, 2000.)). In addition to a number of ethnic hair care and cosmetics brands like Dark & Lovely, Carson markets Dermablend corrective makeup. The combined market share of the two companies - particularly women's hair relaxer products, which the Department of Justice estimates to be at 50.5% - raised a red flag with the agency. Carson's 33.5% share and L'Oreal's 17% hold on the relaxer market would have made the new business approximately twice the size of its next competitor. DoJ launched an antitrust investigation of Carson and L'Oreal's hair care products and later ordered the divestiture of Carson's Gentle Treatment and Ultra Sheen brands as well as the Johnson Products name before approving the deal (2 (Also see "L'Oreal/Carson merger" - HBW Insight, 3 Apr, 2000.) and 3 (Also see "L'Oreal" - HBW Insight, 7 Aug, 2000.)). Individual products under Ultra Sheen include Ultra Sheen Supreme, Gro Natural, Soft Touch and Cream Satin Press. L'Oreal is allowed to continue to market Precise and Perfect Performance products without the Johnson Products reference. Sales for the divested brands would have added $20 mil. in annual sales to L'Oreal's $150 mil.-$160 mil. ethnic beauty care business, the firm said. Despite the divestiture, L'Oreal "will be the number one ethnic hair care company by far," Gardner noted. According to the DoJ notice, the brands should be divested within 90 days of the complaint or five days after the judgment publication, whichever comes later. L'Oreal said it plans to divest the brands as soon as possible, adding prospective suitors likely will purchase them together. While the timeline for selling the brands is tight, L'Oreal appears nonplussed by the prospect. "A lot of companies have expressed interest in the brands...certainly it is known there are some perennial brands in the industry," Gardner stated. "Our commitment is to not have any disruption for our customers [and to] ensure that there is no supply chain interruption in the transition," the exec said. Until a sale becomes final, L'Oreal must keep Gentle Treatment and Ultra Sheen "economically viable and competitive," according to a DoJ proposed consent judgment published in the Federal Register Aug. 22. Marketing and R&D efforts, for example, should be maintained at fiscal year 2000 spending or previously approved levels for FY 2001, whichever is higher, DoJ states. L'Oreal should "ensure all plans and efforts to improve current products sold, or introduce new products under" the brands are continued. In the proposed consent agreement, DoJ maintains if Carson and L'Oreal were allowed to merge without divestitures, competition in the hair relaxer market "would be substantially lessened" and any "potential competition" in the market would be "eliminated," leading to increased prices. "The substantial competition between the two companies would be eliminated and L'Oreal would have the power to profitably increase prices unilaterally...to the detriment of consumers," the proposal states. Furthermore, new companies entering the market would be at a disadvantage because "most hair relaxers introduced in recent years have been unable to gain significant market share" due to intense consumer loyalty, according to the notice. The R&D segment of Savannah-based Carson will join Soft Sheen's research center in Chicago, which is scheduled to open in early 2001. The remainder of the company will stay in Georgia. |