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Putting Lipstick on a Pig of a Cosmetics Deal

Chris Hughes
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Putting Lipstick on a Pig of a Cosmetics Deal

(Bloomberg Opinion) -- Shareholders are again under pressure to demonstrate their patience with companies that get into difficulty.

On Wednesday, the founding family of Swedish cosmetics group Oriflame Holding AG offered 8.9 billion Swedish kronor ($920 million) to buy out the shares it doesn’t already own, saying it would be easier to perform a turnaround out of the public eye. It’s a take-it-or-leave-it offer. Investors must now decide whether the market has got this company wrong.

Oriflame’s stock had fallen by about 50% over the last year. The company, which started life in 1967 by selling products on the doorstep and by catalog, has suffered as competition has grown and sales moved online. A response requires more spending on restructuring and potentially an overhaul of the product range. This will dent profitability.

Meanwhile, Oriflame’s concentrated exposure to developing markets makes its financial performance harder to predict due to currency volatility. After a period of solid growth, earnings are forecast to fall this year and next. Altogether, this is not a recipe for a high stock market rating. The company’s loss of market value is due almost entirely to a fall in the earnings multiple its shares command.

The family’s 227 kronor-a-share offer is a 35 percent premium to the stock’s closing price on Tuesday, which was a roughly three-year low. The stock was at the bid price as recently as January. To get shareholders out at the one-year high would require an offer that was 43 percent higher.

The approach seems friendly enough to management, praising its skill and experience and hinting the team will be kept on. The Jochnick family says it isn’t planning any immediate changes to the company’s strategy and business.

The tone towards the stock market is less tolerant: the bid won’t be raised. End of story.

The blocking stake is a bar to interlopers although there must be a price at which the family would turn from buyer into seller. Investors who think this offer is too low don’t have to accept it. Lately, they have been showing spine – witness their refusal to sell German dotcom Scout24 AG back to its former private-equity owners. This could be another chance for the public markets to show some commitment to long-termism.

To contact the author of this story: Chris Hughes at chughes89@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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