L'Oreal seeks more China glow with $840 million bid for skincare firm

Fri Aug 16, 2013 4:36am EDT
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By Alexandre Boksenbaum-Granier and Donny Kwok

PARIS/HONG KONG (Reuters) - L'Oreal SA (OREP.PA: Quote) has offered to buy Chinese facial mask maker Magic Holdings International Ltd (1633.HK: Quote), a move that would put the world's largest cosmetics group in the lead of the fastest growing sector in China's $15 billion skincare market.

China is the third biggest market for cosmetics in the world as well as for Paris-based L'Oreal's products.

Magic Holdings has the biggest market share in the facial mask market, a sector expected to grow more than 35 percent in the next two years, exceeding the 27 percent expansion in the overall skincare market, according to data from consumer research firm Euromonitor.

L'Oreal's HK$6.54 billion ($840 million) takeover offer for Magic Holdings, equivalent to HK$6.30-per-share, would be a small price to pay to expand in such a high-growth segment, said Summer Wang, Hong Kong-based analyst at BOCOM International investment bank.

The offer values Magic Holdings at 9.1 times its last fiscal year sales. L'Oreal trades at 7 times its 2012 sales.

"L'Oreal just needs to spend a small amount of money and can take over China's biggest facial mask player," Wang said. "Through this deal, it can fast-track its market share in this segment and the valuation is cheap."

China's cosmetics market is expected to grow 63 percent for the five years ending 2015 compared to flat growth for second-ranked Japan, according to consumer research firm Euromonitor.

In a joint statement, Magic Holdings Chairman Stephen Tang welcomed the L'Oreal offer. Magic shares surged as much as 21 percent to an all-time high of HK6.10 on Friday, beating a flat broader market .HSI.   Continued...

People look at L'Oreal cosmetics in a shop in Riga April 13, 2012. REUTERS/Ints Kalnins