$2.7 Billion Bet Laid On Korean Cosmetics Amid Tensions By Unilever

Betting that the pop-culture-fueled appeal of the country’s beauty products will outweigh concerns over regional tensions and in order to gain a stronger foothold in the world’s fourth-largest skincare market, Unilever agreed to buy a South Korean cosmetics maker for 2.27 billion euros ($2.7 billion).

The London- and Amsterdam-based company said in a statement Monday that including Goldman Sachs Group Inc. and Bain Capital Private Equity, Unilever will buy Carver Korea, maker of AHC skincare products, from shareholders. Carver had sales of 321 million euros last year.

As Chief Executive Officer Paul Polman pursues a commitment to sustainability, the acquisition marks a shift from other recent purchases in niche areas like organic tea and vegan mayonnaise for the Anglo-Dutch consumer-goods giant, whose brands include Ben & Jerry’s ice cream and Dove soap. Targeting high-end brands founded in developed markets, such as Dermalogica, Ren and Murad, the company has also been building up a “prestige” arm within its personal care business.

Interest in the Asian country’s cosmetics companies has been heating up and skincare sales in South Korea will reach $6.3 billion this year. In April, $816 million in beauty-products maker Hugel Inc. was agreed to be invested by Bain Capital. Moisturizers, toners and sun protection are among the products of AHC.

Unilever shares rose as much as 0.8 percent early Monday in Amsterdam.

Alongside a boom in the country’s cultural exports, Korean cosmetics have grown popular in the Asia-Pacific region. Korean celebrities to front their advertising campaigns are used by many of the leading brands, which compete with Japan’s Shiseido Co., Kose Corp.

“The Korean Wave, driven by K-pop and TV series, created a desire among Asian consumers to look and feel like Korean celebrities,” said Sunny Um, a Singapore-based analyst at Euromonitor.

Um said speeding up the product development cycle to keep a sense of freshness, Korean cosmetics companies have borrowed a page from fast-fashion brands like Zara. By using herbal ingredients that are trusted in that country, they’ve also appealed to Chinese consumers.

Sales in China have weakened recently amid geopolitical disputes in the region, while strong Chinese demand has fueled growth. A drop of 58 percent in the second quarter was seen in the operating profit of Amorepacific Corp., South Korea’s largest cosmetics company

Amid saber-rattling between North Korean leader Kim Jong-Un and U.S. President Donald Trump, hosting of the U.S.’s Thaad missile system, meant to protect against a possible nuclear attack, has resulted in tensions with China and South Korea. Travel agencies stopped selling tour packages to South Korea in the immediate aftermath of its deployment because China opposes the system.

Acquisition of a majority stake in Carver Korea was announced in July 2016 by Goldman and Bain. Both however did not give the exact terms. Martin Deboo, an analyst at Jefferies with a “buy” rating on Unilever shares said that the deal makes sense strategically, while the price Unilever is paying seems “superficially high”.

It’s right at the top end of what Unilever’s paid for things but it’s pretty profitable and 35 percent of the sales go to China, so they’re acquiring right in the heartland of current beauty trends,” he said.

(Adapted from Bloomberg)

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