$55 bn bid for Colgate: Should Unilever buy?

LONDON: Unilever, the world's second-largest consumer-goods company, should seek to acquire Colgate-Palmolive Co. to boost sales growth in emerging markets and expand its personal-care unit, according to analysts at UniCredit SpA.


Colgate, the maker of Ajax cleaners, would probably cost about $55 billion, Nicolas Sochovsky, a London-based analyst at UniCredit, wrote in a note dated Feb. 7. That's 50% more than the current market value of $36.8 billion.


Trading at less than 9 times earnings before interest, tax, depreciation and amortization, Colgate stock is as cheap as it has been in a decade, Sochovsky wrote.


Acquisitions are one of the quickest ways for Unilever to achieve its aim of doubling revenue, according to Sochovsky. Buying Colgate "would accelerate the portfolio shift to personal care, consolidate Unilever's emerging market strength, provide scale in the U.S." and increase margins, he said.


Under the leadership of Chief Executive Officer Paul Polman, Unilever aims to increase sales by expanding further into emerging markets to offset a difficult consumer environment in western Europe and the U.S. The maker of Dove soap and Knorr soup is shifting its focus away from food products toward faster-growing health and personal care goods.


Polman, the first outsider to lead the London- and Rotterdam-based company, has spent 3.9 billion euros ($5.3 billion) on five acquisitions in the last 18 months, UniCredit said. These include Alberto Culver Co., which added haircare brands including TRESemme and Nexxus, and Sara Lee Corp.'s European shower-gel and European detergents business.


To partially finance an acquisition of Colgate, Unilever could raise 10 billion euros of equity, Sochovsky wrote. That would lead to an estimated debt-to-equity ratio of 3.7 times in the first year of the deal, he said.


To reduce debt after a takeover, Unilever would be able to sell assets such as Colgate's Hill's pet food operation and Unilever's oral care operation, the analyst also said.


Unilever spokesman Trevor Gorin declined to comment on the UniCredit note.