Revlon Inc has agreed to purchase its rival Elizabeth Arden Inc months after the largest shareholder in Revlon contemplated selling the cosmetics business itself.
The deal of all-cash for $420 million will expand the presence of Revlon in categories like perfume and skin care and give it a much broader footprint geographically creating a company that has annual combined sales of over $3 billion.
This deal will also help Revlon to refinance a heavy debt load it is carrying.
Both companies have been struggling over the past few years. Revlon has had its debt load weigh it down, while a key sector of the portfolio of Elizabeth Arden, the celebrity fragrances have lost popularity.
The deal comes just six months after Ronald Perelman the controlling shareholder and company Chairman disclosed that he was looking into different strategic alternative at Revlon.
Since that time, the former CEO at Revlon Lorenzo Delpansi resigned and during March, the giant in the cosmetics world hired Fabian Garcia, who was the COO at Colgate Palmolive and bought a few smaller companies from Coty Inc.
Garcia said that Elizabeth Arden was one of the few remaining iconic brands that were independent in our cosmetic industry. The company said it expects the deal to close before the end of this year.
Revlon announced it would be paying a price of $14 cash for each share of Elizabeth Arden stock equaling a premium of 50% to the closing price of the stock.
The company is going to use $2.6 billion new financing commitments from Citigroup and Bank of American Merrill Lynch to fund this purchase and refinance the existing debt of Arden, along with much of the $1.8 billion Revlon debt that is long-term.
Revlon shares, which have increased 11% during 2016, are down by 15% from the same time last year. Revlon stock moved slightly higher in Thursday trading after hours.
Elizabeth Arden shares were up 50% after the news of the sale was released to just below the offer price of $14 but are down over 31% from the same time last year.
Revlon said it is expecting this deal to produce more than $140 million of savings over the upcoming 3 to 5 years. Revlon forecast sales for 2016 to be $2 billion to $2.1 billion, excluding the impact of fluctuations in currency and acquisitions.
Elizabeth Arden, which in 1910 was founded in New York, sells cosmetics and perfumes under its namesake, as well as makes fragrances for a number of celebrity trademarks like Mariah Carey, Taylor Swift and Justin Bieber.