Maybelline Set to Accept L’Oreal Acquisition Offer

Maybelline Inc. on Monday recommended that its shareholders accept a $758-million acquisition offer from France’s L’Oreal, signaling a possible end to a bidding war with Germany’s Joh. A. Benckiser.

Benckiser, a detergent and fragrance company, said it will not make a counteroffer “at this time” but rather will wait to see whether the L’Oreal acquisition wins U.S. antitrust approval.

If L’Oreal’s offer ultimately prevails, it will create a cosmetics giant that will rank No. 2 in the U.S. market, combining such brands as L’Oreal’s Lancome and Helena Rubenstein with Maybelline, known for its Great Lash mascara and Revitalizing makeup. Maybelline is coveted in part because it has a strong foothold in drug and discount stores, which are grabbing an increasing share of the market from department stores.

L’Oreal’s new offer--made Sunday at $44 a share, compared with Benckiser’s $42 a share--is $100 million higher than L’Oreal’s original offer of $36.75 a share made in December. Benckiser raised the stakes Jan. 12 when it sent a letter to Maybelline stating it was prepared to submit a higher offer. Soon thereafter, it made its formal bid.

“L’Oreal just makes more sense for Maybelline,” said William Steele, an analyst with Dean Witter Reynolds. “Cost-saving synergies are apparent in terms of both distribution and manufacturing.”

Maybelline stock fell $1.25 a share to close at $43.625 on Monday on the New York Stock Exchange, as investors had anticipated higher bids.

The New York-based investment firm Wasserstein Perella & Co., which owns 29% of Memphis, Tenn.-based Maybelline, stands to gain $200 million if the acquisition is approved by the Justice Department and is completed. Wasserstein managing director and Maybelline board member Randall Weisenberger said the Maybelline board met for more than three hours Sunday to review relevant information and decided to recommend L’Oreal’s offer.

But the fight isn’t over yet. Benckiser, whose brands include Coty and Jovan Musk fragrances, said it is “not interested in offering more than $44 a share at this time [but] will continue to monitor the situation, especially in the event that the U.S. Department of Justice opposes L’Oreal’s acquisition of Maybelline.”

L’Oreal’s acquisition of Maybelline would place 82% of the $2-billion U.S. cosmetics industry’s market share into the hands of three major players. L’Oreal would have a 28% share, behind Procter & Gamble Co.’s 29% and ahead of Revlon Inc.’s 25%.

Benckiser had argued that its acquisition would not pose antitrust issues because it markets only fragrances in the United States, not cosmetics, as does Maybelline.

“The antitrust concern is less about the big three colluding to fix prices,” analyst Steele said. “The concern is that there will be less opportunity for small competitors to enter the cosmetics market.”

The Justice Department has 10 calendar days to rule on L’Oreal’s acquisition.