Speculation about toiletries giants Beiersdorf and Henkel is hotting up. Julia Day examines whether there is any substance to them this time around
A persistent rumour circulated the Frankfurt stock market last year that the two German chemicals toiletries giants Beiersdorf and Henkel were preparing to merge. This week in London, that same rumour has re-emerged.
Beiersdorf, which markets the Nivea skincare brand, has been gearing up to centralise its 121m European media buying since last autumn, but, according to sources close to the account, the plans have been put on hold. The inference is that a bid for Beiersdorf is about to go ahead, and the media centralisation plans have been suspended pending this.
Officially, Beiersdorf refuses to comment on what it calls “speculation”. But last year, chairman Rolf Kunish denied rumours of a merger with either Henkel or or Hamburg-based drugmaker Altana AG.
Analysts in both London and Frankfurt agree that the rumoured merger, which both companies have routinely denied, is credible and does make strategic sense.
In 1997 Beiersdorf restructured its medical division (responsible in part for a profit slump last year) and shed 250 jobs. It expects to have shed a further 700 jobs before the end of 1999, and is relying on its medical cosmetics units for growth. As a result of the cuts, its financial position has improved. Last month its annual profits more than doubled to DM320m (110m) on a turnover of DM6.55bn (2.25bn).
Henkel, which markets adhesives Solvite, Unibond, Gloy and Pritt in the UK, has also been busy streamlining its operations. It combined its speciality chemicals products under a separate unit called Cognis in February.
The creation of Cognis, which some analysts believe will eventually be spun off, has enabled the main body of Henkel to concentrate on consumer products. The company says it does not intend to create further separate business units.
Henkel has also been pursuing a global expansion policy which shows no signs of abating. It has been mooted as a possible buyer of Reckitt & Colman – owner of Lemsip, Dettol and Lysol – and purchased a US mining chemicals business from Laporte last October.
The policy has been vigorously pursued for a number of years. Henkel acquired Loctite and Novamax from the US in 1996 and the Schwarzkopf haircare brand the previous year.
Profits are also healthy for Henkel, which reported a 1998 sales growth of 6 per cent to DM21.3bn (7.3bn) and operating profit rose 13 per cent to DM1.55bn.
The company says it expects the sales and earnings growth to continue this year, despite tough global trading conditions.
When asked about the merger, both Beiersdorf and Henkel are sticking to the same story – it is a rumour and as such they will not comment on it. But analysts do not believe the matter is so straightforward and are wary about recommending the stock to investors.
“We would not recommend buying the stock merely on the basis of the merger rumours,” says one Frankfurt analyst. “If we are convinced that a merger or takeover will take place, then of course we might change our ideas.”
One London analyst, who has witnessed the rumour resurfacing, says “Henkel’s strategy is to pursue a portfolio focused more on consumer products than chemicals, and Beiersdorf has products that would fit reasonably well with this strategy.”
Beiersdorf is roughly a quarter of the size of Henkel, so a merger of equals looks out of the question. But finance is a major consideration.
“The difficulty is cost,” says the London analyst. “DM6bn (2bn) is the market capitalisation for Beiersdorf, a sum of money which would be difficult for Henkel to raise. It’s not a small deal.”
However, the ownership structure of Beiersdorf may be the biggest stumbling block to the rumoured deal, according to the analysts.
“Henkel would be happy to buy, but Beiersdorf is not interested in selling to a third party. It has some large shareholders owning large stakes,” says one Frankfurt analyst.
However, German property and insurance company Allianz Versicherungs AG owns a 38 per cent stake in Beiersdorf and whispers abound that it is willing to sell in order to invest in the Dresdner Bank. Tchibo Holding AG, a 25 per cent stake-holder, is thought to be interested in acquiring Allianz’s stake.
In London, another analyst says: “The majority of Beiersdorf’s shares are in concentrated hands and if they are not interested in selling it would make a hostile bid very difficult.”
Nevertheless, consolidation is rife within the chemicals and personal care industries.
“There is increased pressure to consolidate in the areas that Henkel operates and I fully expect this will continue. But the question is whether Henkel has the ability to do all these things at once,” says the London analyst.
If one of Henkel’s chosen focus areas is consumer toiletries, it would make sense to acquire Beiersdorf’s Nivea, Atrixo and Lobello brands.
Beiersdorf has valuable brands that fit Henkel’s strategy of separating its chemicals division for a possible sell-off and concentrating on consumer products. As long as this remains true, the on-off rumour of a merger between the two German giants seems unlikely to go away.