Initially LG H&H would not strike us as the beauty behemoth like many of the other big players, but having acquired several smaller firms in the local market, including TheFaceShop, it is reported that it considers a bid for the U.S. cosmetics firm as an acquisition that would give it globally recognized luxury brands and would be its most ambitious to date.
Reuters reports Elizabeth Arden has a market value of $845 million, and it has seen its sales hit by a much weaker-than-expected North American retail market as well as deep industry discounting in key European markets that have eroded profit margins.
Global expansion
LG Household has been taking more international steps of late, particularly in cosmetics, where it recently acquired Japanese firm Everlife and Canadian retailer Fruits & Passion.
It is also said to be keen to expand its product lines and reach, having completed 12 acquisitions since 2007, although none quite match up to a potential Elizabeth Arden deal.
"LG Household has grown so far based on M&A. We are looking at several potential deals at the moment for the same reasons, and Elizabeth Arden is one potential option," said a company spokesman, responding to a report in the Maeil Business Newspaper about the potential bid.
"We are considering both local and overseas deals," he added.
Wait and see
Speaking with Kline M&A experts last month, it is clear that acquisitions are the way to expand, particularly in beauty, as it can really help to inherit an existing company’s reputation and market standing.
It would also make sense for LG Household to expand and branch out into international fields, as it is currently the No.2 in the South Korean cosmetics market with brands such as Whoo and O Hui, meaning Elizabeth Arden could provide it with a new growth engine.
"Should the deal materialise, the key will be how much synergy (LG Household) can generate by acquiring new product lines and selling them in Asia," Meritz Securities analyst Song Kwang-soo told Reuters.
"Elizabeth Arden's margins are also lower than LG Household's, so there is also potential for increased value through restructuring."