By Naoko Fujimura Jan. 15 (Bloomberg) — Shiseido Co. , Japan’s biggest cosmetics maker, agreed to acquire Bare Escentuals Inc. for about $1.7 billion in cash to expand outside a shrinking domestic market. The offer values San Francisco-based Bare Escentuals at $18.20 a share, 43 percent more than yesterday’s closing price, the companies said in a statement today. Shiseido’s largest-ever purchase gives it the bareMinerals brand sold through 800 U.S. retail outlets and 1,500 salons in its smallest regional market . The Tokyo-based company aims to raise the proportion of overseas sales to 50 percent by 2017 from 38 percent last fiscal year as falling wages and an aging population sap demand at home. “Shiseido needs to escape Japan to survive,” said Mitsuo Shimizu , an analyst at Cosmo Securities Co. in Tokyo. “The purchase will help boost its presence in North America, which has been a weak market for them.” Shiseido climbed rose 4 percent to 2,020 yen as of 11 a.m. in Tokyo, headed for its highest close in 14 months. Bare Escentuals fell 2.1 percent to $12.74 on the Nasdaq Stock Market yesterday. The stock has more than doubled during the past year. Bank of America Corp.’s Merrill Lynch is advising Shiseido and Bare Escentuals is being advised by Goldman Sachs Group Inc. After the takeover, overseas sales will account for 42 percent of Shiseido. “This acquisition further enables Shiseido to move towards our goal of becoming a global player,” Shinzo Maeda , chief executive officer of the Japanese maker of the Elixir Superieur and Maquillage brands, said in the statement. Berkshire Partners LLC, the biggest shareholder in Bare Escentuals with a 16 percent stake, agreed to tender its shares, according to the statement. Executives Retained Chief Executive Officer Leslie Blodgett as well as Myles McCormick , who is chief financial officer and chief operating officer, will remain with Bare Escentuals after the acquisition. The tender is scheduled to begin within 10 business days and is expected to be completed by the end of March. Bare Escentuals’ increased net income 11 percent to $98 million in 2008, with an 8.8 percent gain in sales to $556 million. The company had an operating profit margin of 31.5 percent, more than four times Shiseido’s 7.2 percent. Shiseido will start to include earnings from Bare Escentuals, which employs 2,779 people, next fiscal year. The Japanese company will use about 30 billion yen ($329 million) in cash and secure 150 billion yen in bridge loans to fund the acquisition. The purchase is the biggest by a Japanese cosmetics maker since Kao Corp. bought control of Kanebo Cosmetics Inc. for $3.5 billion in 2006. Shiseido’s Japan sales have fallen every month this fiscal year. Salaries in Japan have dropped for 18 straight months as the nation emerges from its worst post-war recession. Japan’s cosmetics market declined 0.3 percent to 2.2 trillion yen in 2008, according to market researcher Fuji Keizai. To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net .
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Shiseido Buys Bare Escentuals for $1.7 Billion as Japanese Market Shrinks
