There is a cynicism about some business deals that simply astonishes. ITV’s £175m acquisition of Friends Reunited, for example. Minor earnings enhancement, yes; seen to be doing "something" , however incoherent, about the online media revolution, yes. Brand synergies? Ah. Or what about McDonald’s decision, a few years back, to buy into Pret a Manger? What was all that about?
Into this category of deal falls L’Oréal’s decision to acquire the Body Shop for £650m. Questions about the wisdom of the deal come more readily to mind than convincing justifications. Why would one of the world’s largest cosmetics manufacturers want to bother itself with what is, by international standards, a specialist retail operation? If anything, the trend is towards decoupling retail and manufacturing, not putting them together. Witness the sale of Boots Healthcare International.
Equally, the idea of ethical retail goddess Anita Roddick signing a Faustian pact with the epitome of unsentimental, unreconstructed capitalism is unlikely to go down well with consumer devotees of The Body Shop credo. L’Oréal may have ceased animal experimentation in its R&D, but it still uses ingredients that are animal tested. Further, it has a well attested record of ruthlessness in achieving corporate success which does not scruple at jettisoning underperforming brands.
Look beyond the surface paradoxes, however, and the deal makes a lot more sense. The Body Shop has long since been losing steam. Only last Christmas, it issued a profits warning after poor sales in the UK and US. Moreover, from an ethical branding point of view, its once unique proposition has spawned widescale imitation, to the detriment of The Body Shop bottom line. The case of Dove, in particular, springs to mind.
Yet it is precisely the brand heritage of The Body Shop which could be so valuable to L’Oréal. L’Oréal faces a similar problem to NestlÃ© as it dabbles with Fairtrade (Nestlé, as it happens, owns 25% of the cosmetics giant). Sophisticated Western consumers are demanding more of trusted brands these days: their owners must also be sound on corporate social responsibility if they are to expect loyalty. Roddick, who will work as a consultant for L’Oréal, has been supremely successful at exploiting this brand "altruism" which taps into a deepening well of guilt about such issues as the environment and third-world poverty.
In all probability, however, the long-term prize for both companies will be found in Western markets. The Body Shop will be able to exploit L’OrÃ©al’s huge resources (it spends over £300m a year on R&D alone) to build its retail network and brand range in the fast-developing markets of India and China where the ethical concept is, shall we say, newer.
As ever, though, much depends not on the deal itself but on how it is implemented. L’Oréal must manage The Body Shop at arm’s length if it is to achieve anything more than a PR coup. With its reputation for control freakery, will L’Oréal be able to resist interfering? That is the question.