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
Facebook Twitter LinkedIn

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.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Unilever PLC4,409.00 GBX0.07Rating

About Author

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

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures