Johnson & Johnson look set to take over Dabao

Several reports in the China press, including one in the Shanghai Morning Post, have reported that the two parties signed an agreement on March 27 for Johnson & Johnson to acquire Dabao.

This is not the first time Johnson & Johnson has been close to buying the company though.

In August 2006 China press reported that advanced talks between the two companies were taking place to negotiate a takeover, talks that seem to have been rekindled in recent months.

Dabao has been looking for a serious bidder for over a year now, and is thought to have scaled the list of potential bidders down by implementing a number of criteria that has all but turned the bidding into a one-horse race.

Dabao established a minimum takeover bid of CNY2.3billion (€221m) last month, as well as stating that any potential bidders by own cosmetics brand that are either distributed nation-wide in China, or else globally.

Likewise, it was also required that the company have CNY20bn in capital, together with a bank guarantee that any potential bidder would be able to secure financing that would meet the bidding price.

The newspaper report stated that it was the bank guarantee that had excluded global giants Avon and Unilever from participating in the bidding race, as they could not come up with the required financial guarantee.

Dabao is a leading player on the China skin care market, with a number of brands that compete along with the largest players on the market.

Currently Dabao is estimated to be the third largest skin care provider in China, behind Unilever and Procter & Gamble respectively.

Dabao's skin care products are marketed at the mid- to low-end market range in China, thus appealing to the growing number of women, and a hand full of men, who are beginning to invest increasing amounts of time and money on their skin care routines.

Its biggest selling ranges are its night creams, skin lightening products, anti-aging creams and under-eye creams.

For Johnson & Johnson, the move to buy up Dabao could represent rich pickings in a market segment that is already showing huge growth rates on the back of the growing consumer spending power.

It also follows a trend, whereby large multinational companies are moving in to buy up producers of mid- to low-range cosmetic and toiletries products in an attempt to expand their footing on a rapidly evolving segment of the market.

According to the Kline Group, growth of skin care products in China during the period 1999 to 2003 was modest at 9.8 per cent.

A lot of this market growth came from the premium end of the market, which was the first to really develop in China.

However, as wealth is now starting to filter down to greater numbers of China's estimated 1.3 billion population, it seems that even richer pickings could be in sight at the lower end of the market.

It is this impetus that has helped push cosmetics market growth well into double figures in the last couple of years and is likely to sustain growth at this kind of levels should current economic conditions continue to prevail.

China Investment Consulting says that currently market growth within the cosmetics segment is running at 13 per cent and is estimated to be valued at CNY68bn (€6.5bn).

Johnson & Johnson has already established itself in the medical, health care and general personal care market, but the purchase of Dabao would be its first big move into the mid- to low-end cosmetic market.

Currently it has eight registered businesses in China, including Johnson & Johnson China and Johnson & Johnson Medical.