Is Unilever Overpaying for Growth?

We believe Alberto Culver's price tag is a bit high and we are reviewing Unilever's fair value estimate

Lauren DeSanto 27 September, 2010 | 4:55PM
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After more than 50 years as a well-run small company, Alberto Culver (ACV) has faced the music and agreed to be acquired by Unilever (ULVR) for $3.7 billion in cash. For Alberto shareholders this is a great deal, but for Unilever it's a hefty price to pay to fill out its hair-care portfolio. The firm is paying a 34% premium to our fair value estimate for Alberto and roughly 2.3 times sales and 14.8 times trailing-12-month EBITDA.

Clearly, Unilever is willing to pay up for growth, and it will be the ability to take Alberto's brands and slot them into the white spaces of Unilever's portfolio in new markets that will make this deal worthwhile. Alberto is a thrifty company with a smart management team. It's been able to compete with much larger players like Unilever and Procter & Gamble (PG) because its brand managers are on the ground and close to the retail action. We wouldn't describe Unilever this way. While the purchase price is unlikely to move the needle on our valuation of Unilever, we believe the firm is overpaying for growth and we're putting our fair value estimate for Unilever under review. Our fair value estimate for Alberto shares will be the $37.50 purchase price, as we expect the deal to go through.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Unilever PLC4,686.00 GBX3.17Rating

About Author

Lauren DeSanto  Lauren DeSanto is Morningstar's chief operating officer for equity research.

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