Revlon's Acquisition of Elizabeth Arden
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Case Code: BSTR534 Case Length: 10 Pages Period: 2015-2017 Pub Date: 2018 Teaching Note: Available |
Price: Rs.300 Organization : Elizabeth Arden Inc./Revlon Inc. Industry :Cosmetics Countries : USA / Global Themes: Mergers and Acquisitions |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
The Journey of Revlon
The history of Revlon Inc, one of the world's leading cosmetics companies based in New York, can be traced back to 1932. Two brothers, Joseph Revson and Charles Revson, conceived of the idea of creating a nail enamel using pigments instead of the normal dyes. They collaborated with a local chemist named Charles Lachman (who contributed the ‘L’ to the Revlon name), to come up with their first product. Revlon developed a variety of new shades of nail polish. Seeing the booming beauty salons and the growing popularity of manicures they targeted beauty salons as a market to sell their nail polishes...
Arden Hit by a Financial Crisis
Arden was known for its fragrances including those licensed from celebrities like Marilyn Monroe, Catherine Zeta-Jones, Britney Spears, Justin Bieber, Taylor Swift, and many more. However, in 2014, the company posted the biggest ever quarterly loss in its history, a 28 per cent drop in revenue. The company was hit hard mainly because of a fall in the sales of its celebrity perfumes. The company statement said, “While the company had expected weaker sales comparisons due to the lower level of fragrance launch activity in fiscal 2014 versus fiscal 2013, the decline in sales of celebrity fragrances, particularly the Justin Bieber and Taylor Swift fragrances...
On the Road to Beautification
In June 2016, mired in financial woes, Revlon decided to pick up Arden. The company agreed to buy Arden in an $870 million deal. The wager was expected to create a beauty business with annual sales of $3 billion along with creating a platform in categories like mass, prestige, professional, color cosmetics, skin care, and fragrances. In addition to greater purchasing power, the merged entity was expected to benefit from cost savings of nearly $140 million by eliminating overlaps, integrated manufacturing, and distribution networks of both companies. Garcia said, “We see great opportunities for growth where they are strong and we are not.” ...
Industry Reaction
Some analysts expected a negative outcome from the union. They felt that Revlon was buying a troubled competitor with an elevated debt load. Although Revlon pointed to the expected synergies, experts found this unrealistic and opined that it could possibly result in higher leverage ratios. Wendy Liebmann, CEO of WSL Strategic Retail, stated, “There’s so little other business synergy. Arden is a fragrance and skin care house. Revlon is a color cosmetics and hair-color business. Different price points and distribution...
The Makeover
The deal not only marked a turnabout for investors, it also put an end to speculations that Revlon would be an acquisition target – rather than a buyer. Before the acquisition was announced, Arden's market capitalization was $280 million. Shares had fallen 40 percent off their 52-week high. But as soon as the news of the acquisition came in, Arden’s shares soared by as much as 50 per cent and closed at $14; Revlon rose about 6.6 percent to close at $33.25...
Road Ahead
In January 2017, Revlon decided to divide and organize the business into four categories: the Revlon brand, Elizabeth Arden, fragrances and portfolio brands, (which included Almay, Mitchum, Gatineau, Sinful Colors and Pure Ice cosmetics. Each Revlon team was required to prepare a three-year growth plan and set priorities and strategies for their labels. The core corporate functions including finance, human resources, supply chain, research and development, legal, communications, and corporate social responsibility departments were to be reorganized to provide better support to the new brand-centric and regional structures...
Exhibits
Exhibit I:Elizabeth Arden Net Sales (2002-2016)
Exhibit II: Revlon Inc. Net Sales (2002-2016)
Exhibit III: Share prices of Revlon and Elizabeth Arden (2013 – 2016)
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