BARE Mkt... not BEAR Mkt.

January 14, 2010, 8:01 pm

Shiseido to Buy Bare Escentuals for $1.7 Billion

Shiseido said late Thursday that it has agreed to buy Bare Escentuals for $1.7 billion in cash, landing the Japanese cosmetics giant one of the biggest players in the world of mineral makeup.

Unlike rivals like Estee Lauder, Shiseido has not made many major acquisitions over its history. But in Bare Escentuals, it will gain a major player in the United States that sells its products both in retail stores like Sephora and its own boutiques, and directly to customers through outlets like QVC.

The deal will also give Bare Escentuals broader global exposure. The company, based in San Francisco, reported last year that its international business made up just 11.9 percent of its sales for 2008. It reported $556 million in sales and nearly $98 million in net income for 2008.

Cosmetics companies have rushed to mineral makeups in recent years, touting an array of benefits ranging from better coverage to healing properties.

Shiseido said that it will first offer to buy Bare Escentual’s outstanding shares for $18.20 each, a nearly 41 percent premium to the American cosmetics company’s three-month average stock price and a nearly 40 percent premium over its closing stock price on Wednesday. After the tender offer expires some time in the first quarter, Shiseido said it will buy any remaining shares through a merger, also at the $18.20 per-share price.

Under the terms of the takeover, Bare Escentuals will be run as a Shiseido subsidiary under its current management, including its chief executive and chief financial officer, Leslie Blodgett and Myles McCormick. The continued employment of Ms. Blodgett, the company’s public face and a regular presence on QVC, is a key part of the deal. (As a sign of Ms. Blodgett’s importance, Bare Escentuals said in its most recent annual report that it maintains a $34 million life insurance policy for her.)

As part of the deal, Ms. Blodgett has agreed to exchange 40 percent of her existing shares for a continued interest in the business after the deal.

“This is an exciting day for all of us at Bare Escentuals and I couldn’t be more pleased to be joining forces with the team at Shiseido,” Ms. Blodgett said in a statement. “Together with Shiseido, we look forward to bringing our mineral-based beauty products to even more women worldwide.”

Another large Bare Escentuals shareholder, the private equity firm Berkshire Partners, agreed to tender its shares, representing about 16 percent of outstanding stock.

Shares in Bare Escentuals fell 2 percent to $12.74 on Thursday, before the deal was announced. They have fallen nearly 5.5 percent over the past three months.

Shiseido was advised by Bank of America’s Merrill Lynch unit and the law firms Shearman & Sterling and Mori Hamada & Matsumoto. Bare Escentuals was advised by Goldman Sachs and the law firm Ropes & Gray.

– Michael J. de la Merced

Edited by milbank, 15 January 2010 - 11:20 AM.