NEW YORK — With Alberto-Culver’s $2.6 billion deal with Regis Corp. dead in the water, analysts suggested the company put Sally Beauty on the selling block. Several cautioned, however, that such a move might prove costly.
The deal, as originally proposed in January, called for Alberto-Culver to merge Sally’s 2,419 stores, and its Beauty Systems Group’s 822 outlets and 1,244-person sales force, into Regis’ $4.5 billion salon business. The merger unraveled Wednesday night when Regis rejected the deal after Alberto-Culver said its board no longer supported the transaction.
“We hope that Alberto-Culver will separate its consumer products and Sally businesses,” Linda Bolton Weiser of Oppenheimer & Co. wrote in a research note, adding that L’Oréal could be a potential suitor. Jason M. Gere of AG Edwards & Sons warned that a spin-off could be costly, particularly for a smaller company like Alberto-Culver.
“The big question now is, Who’s running the company?” asked Gere, referring to the rapid-fire events Wednesday as a “soap opera.”
Had the Regis deal gone through, V. James Marino, Alberto Culver’s president of consumer products, would have become chief executive officer of Alberto-Culver, replacing president and ceo Howard B. Bernick, who was to retire and join Regis’ board as non-executive chairman.
A spokesman for Alberto-Culver said Bernick will remain ceo and Marino will continue to run the consumer products business.
Since January, Alberto-Culver had frequently stated that the union with Regis was intended to alleviate conflicts between Alberto Culver’s distribution business, which sells competitors’ brands, and its consumer products division. Alberto-Culver’s consumer products brand portfolio includes Alberto VO5, St. Ives, TRESemmé and Nexxus.
Last month, Marino declared that the merger would allow Alberto-Culver to “go back to its roots as a consumer products company.” The collapse of the Regis deal could put that strategy on hold.
Alberto-Culver, a $3.5 billion company, began to have misgivings about the deal after Regis revised its outlook for 2007. Weiser noted that Regis’ share price had slipped 14 percent since the deal was announced, reducing the value of the transaction by $300 million.
The merger fell apart after Alberto-Culver said its board had withdrawn its recommendation to merge its retail and distribution businesses with Regis, citing the salon company’s financial vulnerabilities.
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“It was pretty evident that it was going to be difficult to get the number of votes needed to get the deal passed, given that Alberto-Culver has a large insider position,” said a Regis spokesman, referring to the company’s decision to terminate the deal before having Alberto-Culver shareholders vote. Nearly 15 percent of the Alberto-Culver stock is family owned.
“From the beginning, this transaction was a want, not a need,” the spokesman added. “Alberto-Culver approached us, and it was a natural fit.”
Regis will not walk away empty-handed. The merger agreement requires Alberto-Culver to pay Regis a termination fee, believed to be $50 million.
In a research note released Thursday, Piper Jaffray’s senior research analyst Mitchell A. Kaiser said, “While the acquisition of Sally Beauty Supply would have given Regis significant buying power within the hair care industry, termination of the deal should allow management to refocus their attention on their core business.”
Speaking at a Bank of America consumer products conference March 16, Marino said Alberto-Culver was on the lookout for acquisitions, citing interest in premium skin care or hair brands roughly $50 million in size.
“We certainly have the cash and the wherewithal to make that kind of an acquisition,” Marino said.