Johnson & Johnson is making its biggest acquisition in four years with the $3.3 billion agreement to purchase closely held hair-care company Vogue International, in an effort to accelerate growth at its smallest unit, the consumer division.
While most of J&J makes most of its sales from drugs or medical devices, the health-care giant has a long history in consumer products, with storied brands such as its baby-care line, Band-Aid bandages, Listerine oral care and Neutrogena hand cream. The purchase will add brands such as OGX shampoos and conditioners, as well as the FX, Proganix and Maui Moisture lines.
Vogue’s founder, Todd Christopher, who owns 51% of the Clearwater, Florida-based company, will become a billionaire with the deal, with a net worth of $1.9 billion, according to the Bloomberg Billionaires Index. Carlyle Group, which invested about $400 million in the company two years go, holds the rest of Vogue.
J&J has been working to turn around the consumer division--which made up about 19% of sales last year--ever since recalling millions of over-the-counter medicines, including children’s and infant’s Tylenol in 2009, mostly coming from its McNeil division.
“Vogue represents the first large transaction in the consumer business since the McNeil recalls began in 2009, suggesting that the division is likely on more solid footing now to focus on accelerating growth,” said Larry Biegelsen, an analyst at Wells Fargo who rates the stock outperform, in a note to investors Wednesday.
Biegelsen estimates Vogue’s annual sales are at least $300 million--which would imply J&J will pay as much as 11 times revenue--with a 25% growth rate over the last five years. Adding Vogue’s brands will help move J&J to No. 4 from its No. 8 position in U.S. hair products, said Mark Boston, a company spokesman.
Mega Deals
Pharmaceuticals became J&J’s largest division in 2014 and now accounts for about 45% of revenue, surpassing the medical-tools segment. J&J has been developing its own blockbuster drugs in recent years, while rivals went on a buying sprees to acquire hot new treatments. In March last year, J&J lost out to AbbVie Inc., which made a last-minute, $21 billion bid for Pharmacyclics Inc., a J&J partner in the development of blood-cancer drug Imbruvica.
The Vogue deal is Johnson & Johnson’s biggest since the $18 billion purchase of Synthes Inc., a maker of tools and implants to treat damaged bones, in 2012. That deal was the drugmaker’s largest ever, according to data compiled by Bloomberg.
J&J shares rose 1.7% to $114.53 at 2:58 p.m. in New York. Through Wednesday, the stock had gained 13% in the past 12 months, while the Standard & Poor’s 500 Index fell 0.5%.
Founded in 1987 by Christopher, Vogue International sells its products in the U.S. and 38 other countries, Carlyle said in a press release on its website. Including a dividend Vogue paid to its owners last year, Washington-based Carlyle will reap a profit of almost 300% on its investment, said a person familiar with the matter, who asked not to be identified because the information isn’t public.
The Vogue transaction, expected to close during the third quarter, won’t affect 2016 sales or earnings guidance, New Brunswick, N.J.-based J&J said in a statement.
