UPDATE 3-South Korea's LG Household considers bid for Elizabeth Arden

Wed Apr 23, 2014 11:03am EDT

* LG Household shares rise 3 percent on news of potential bid

* Elizabeth Arden has a market value of $845 million

* LG Household would gain globally recognized luxury products

* Elizabeth Arden shares rise as much as 17 pct (Adds Elizabeth Arden share movement, background)

By Se Young Lee

SEOUL, April 23 (Reuters) - South Korea's LG Household & Healthcare Ltd said it is considering a bid for U.S. cosmetics firm Elizabeth Arden Inc, an acquisition that would give it globally recognized luxury brands and would be its most ambitious to date.

Elizabeth Arden's shares rose as much as 17 percent on the Nasdaq on Wednesday.

The company, which has a market value of $845 million, has seen its sales hit by a much weaker-than-expected North American retail market as well as deep industry discounting in key European markets that have eroded profit margins. Its shares have fallen 20 percent so far this year.

LG Household, keen to expand its product lines and reach, has completed 12 acquisitions since 2007, though the biggest of these has been a relatively small $375 million purchase of a local retailer.

Four of its five latest deals were overseas acquisitions, including Japanese cosmetics firm Everlife and Canadian retailer Fruits & Passion.

"LG Household has grown so far based on M&A. We are looking at several potential deals at the moment for the same reasons, and Elizabeth Arden is one potential option," said a company spokesman, responding to a report in the Maeil Business Newspaper about the potential bid.

"We are considering both local and overseas deals," he added.

Elizabeth Arden did not respond to requests for comment.

LG Household, No.2 in the South Korean cosmetics market with brands such as Whoo and O Hui, saw its shares climb 3 percent in a flat market on hopes that Elizabeth Arden would provide it with a new growth engine.

"Should the deal materialise, the key will be how much synergy (LG Household) can generate by acquiring new product lines and selling them in Asia," said Meritz Securities analyst Song Kwang-soo.

"Elizabeth Arden's margins are also lower than LG Household's, so there is also potential for increased value through restructuring."

Elizabeth Arden trades at a 12-month forward price-to-earnings multiple of 16.8, compared with its U.S.-listed peers forward P/E of 22.1, according to Thomson Reuters data. LG Household trades at a forward P/E of 20.8.

The company posted a 10.6 percent decline in second-quarter net sales in February. Sales at its North America business declined 13 percent, hit by weaker-than-expected holiay sales.

In addition to its namesake brand, Elizabeth Arden is known for celebrity brand perfumes such as those of Taylor Swift and Justin Bieber, as well as skin care brands like Ceramide and Prevage.

The company sells its products to U.S. chains such as Wal-Mart Stores Inc, Target Corp and Kohl's , as well as department stores including Nordstrom Inc and Macy's Inc.

Elizabeth Arden's net income attributable to shareholders fell to $34.95 million for the fiscal quarter than ended Dec. 31, down from $44.81 million a year earlier. It has said it is working on a fundamental reexamination of how it executes its business, particularly internationally.

The company's shares were up 12.7 percent at $32.05 in late morning trading. (Additional reporting by Denny Thomas in Hong Kong and Maria Ajit Thomas in Bangalore; Editing by Edwina Gibbs)

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