* Deal would make L'Oreal leader in China's facial mask
* L'Oreal would also get boost from Magic's e-commerce
* Magic's shares jump 21 percent to all-time high
(Adds details, background)
By Alexandre Boksenbaum-Granier and Donny Kwok
PARIS/HONG KONG, Aug 16 L'Oreal SA has
offered to buy Chinese facial mask maker Magic Holdings
International Ltd, 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 27 percent expansion in the
overall skincare market - according to data from consumer
research firm Euromonitor.
Face masks have long been part of Chinese beauty rituals and
are a popular way of combating pollution, particularly in big
cities. Demand for them has been driven lately by a steady
increase in the annual disposal income of China's middle class,
in particular among a growing group of consumers termed
'metrosexuals' - men who spend lavishly to guard their looks.
The deal marks L'Oreal's biggest purchase since its 2008
acquisition of Yves Saint Laurent Beaute for 1.15 billion euros
from the French group PPR, today renamed Kering, which
still owns the eponymous fashion brand.
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
"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."
The offer values Magic Holdings at 9.1 times its last fiscal
year sales. L'Oreal trades at 7 times its 2012 sales while its
acquisition of YSL Beaute valued it at 1.8 times sales.
Magic Holdings made sales of 150 million euros in 2012, up
29 percent on the previous year.
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
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, in a broader
market that was flat.
The deal marks the French group's return to the acquisition
trail in the region, having bought Chinese skincare brand
Mininurse in 2003 and the following year Yue Sai, a cosmetics
brand founded by a Chinese-American TV presenter.
Six key shareholders, representing 62.3 percent of equity,
support L'Oreal's offer but the deal still needs to be approved
by the Chinese Ministry of Commerce, L'Oreal said.
Magic Holdings, which has a market value of $676 million,
had 288 distributors at the end of December, up from 261 in June
The company also expanded into e-commerce this year after
buying an online distributor in May, which would give L'Oreal
greater access to China's booming online retail market.
L'Oreal's offer represents a 25 percent premium to Magic
Holding's last closing price before trading in the shares was
suspended on Aug. 12 to prevent speculation.
The deal will be financed from L'Oreal's cash reserves and a
650 million euro credit facility from BNP Paribas, the
two companies said in a joint statement. On completion, the
shares will be withdrawn from the Hong Kong stock exchange.
Magic Holdings has two factories in southern China, with
annual capacity of about 260 million pieces of peel-off masks
and 12 million bottles of wash-off masks.
A new production facility which will go into operation by
mid-2015, is expected to raise total capacity to about 400
million pieces of peel-off masks per year.
L'Oreal, which made 1.5 billion euros in sales in China in
2012, has a research laboratory and two production plants near
Shanghai where it makes mass market products such as L'Oreal
face creams, Garnier shampoo and some hair coloring products.
($1 = 7.7549 Hong Kong dollars)
($1 = 6.1125 Chinese yuan)
(Additional reporting by Astrid Wendlandt and Alexandria Sage
in Paris and Alexandra Hoegberg in Hong Kong; Editing by Sophie