Nestle Will Sweeten Its Skin-Care Offering With Valeant Derm Brands
This article was originally published in The Rose Sheet
Executive Summary
Swiss food and beverage company Nestle SA is growing its stake in skin care, particularly in North America, with its pending $1.4 billion acquisition of five aesthetic dermatology brands from Valeant Pharmaceuticals International Inc., which would be folded into the firm’s Nestle Skin Care Health division. Subject to regulatory approval, the deal demonstrates the firm’s new commitment to health and wellness, says analyst.
Switzerland-based Nestle SA is gaining a stronger foothold in North American skin care with a $1.4 billion cash acquisition of five aesthetic dermatology skin-care brands from Valeant Pharmaceuticals International Inc., the firm announced May 28.
Subject to regulatory approval, the deal will give Nestle rights to commercialize dermal-filler products Restylane, Perlane, Emervel and Sculptra and botulinum toxin anti-wrinkle drug Dysport in the U.S. and Canada. Nestle already sells four of the brands outside North America via its Galderma business, per a licensing agreement with the brands’ former owner.
“We believe that this transaction constitutes solid strategic sense, since many – if not all – of these products would probably have been required to be divested in the wake of Hart-Scott-Rodino review of the Allergan-Valeant transaction,” said Aegis Capital analyst Raghuram Selvaraju, referring to the antitrust act.
The acquired properties will be folded into Nestle’s Skin Health division, which is anchored by the Galderma portfolio – a cache of skin-care products that includes the Cetaphil line and numerous dermatological brands.
“With this deal we have acquired key strategic assets to extend Nestle’s activities in the field of specialized, medical skin treatments, providing consumers with life-enhancing scientific products,” Nestle Chairman Peter Brabeck-Letmathe states in a release.
Nestle established Galderma as part of a joint venture with L’Oreal SA in the 1980s, but recently agreed to purchase the French company’s 50% stake in Galderma in a deal expected to close in July (Also see "L’Oreal Buys Back Shares From Nestle, Sells Galderma Stake" - HBW Insight, 17 Feb, 2014.).
The products included in the deal mostly came to Valeant as part of the firm’s 2012 acquisition of Medicis Pharmaceutical Corp.
Reshuffling In Booming Field
Morningstar analyst Erin Lash stated in a same-day analyst report that while about three-quarters of Nestle’s annual sales come from the food, beverage and snack realms, the firm is taking its stated desire to move into a broader array of health and wellness categories seriously.
“We think this is a sensible strategy given the strong demand from millennials for healthy, functional products, for which they are willing to pay a premium,” she says.
Lash estimated that Nestle’s purchase price is more than five times sales of the products, a “rich price given that Valeant was likely looking to offload these assets quickly.”
She noted that Valeant’s spinoff of the medical brands will better position it to pursue its own intended purchase of Allergan Inc., marketer of Botox products and the leading player in the medical dermatology field with an 80% share.
The same day Nestle announced its acquisition, Valeant separately reported it had increased its bid to acquire Allergan, adding $10 per share in cash to an offer that Allergan shareholders rejected last month and maintaining the previously proposed 0.83 of Valeant share for each unit of Allergan stock, bringing the per-share price to approximately $166 and the overall acquisition value to around $51 billion.
Analysts are skeptical that Allergan will take the revised bait. “VRX’s new offer is better, but may not be compelling enough given AGN’s strong standalone outlook,” Credit Suisse analyst Vamil Divan said in a same-day note.
Valeant’s sale of its products to Nestle is tied to antitrust concerns over the pending Allergan purchase, but Valeant says the transaction is not contingent upon it.
“We believe that this transaction constitutes solid strategic sense, since many – if not all – of these products would probably have been required to be divested in the wake of Hart-Scott-Rodino review of the Allergan-Valeant transaction,” Aegis Capital analyst Raghuram Selvaraju said, referring to the antitrust act.
The reshuffling of medical dermatology brands between the firms reflects the growth opportunities in the field and companies’ efforts to position themselves appropriately. During a May 28 call discussing its pending deal with Nestle and its increased bid for Allergan, Valeant noted that medical dermatology is growing at a rate of 6% to 7% in the U.S. alone, representing sales of more than $7 billion.
The field is defined by a few large players, most notably Allergan. The dermal-filler products Nestle will acquire from Valeant compete directly with Allergan’s Juvaderm line, and the Dysport anti-wrinkle drug competes directly with Botox.
Canada-based Valeant is a leading medical dermatology company with both medical dermatology brands and consumer brands such as CeraVe OTC formulas and Kinerase skin care.