Magic shares gain healthy glow from L'Oreal offer

Deal will help accelerate French cosmetics group's expansion in the facial mask sector

PUBLISHED : Friday, 16 August, 2013, 8:53am
UPDATED : Wednesday, 20 June, 2018, 5:50pm

Shares of Magic Holdings International jumped 19 per cent yesterday after L'Oreal, the world's largest cosmetics group, offered to acquire the Chinese skincare firm for HK$6.5 billion.

L'Oreal said its offer of HK$6.30 per share, announced late on Thursday, was backed by Magic's board.

"Six key shareholders, representing 62.3 per cent of the company's equity, are already committed to supporting L'Oreal's proposal," the French company said in a statement, adding that the deal would be subject to approval by Beijing.

The deal was expected to be financed through a credit facility from BNP Paribas and L'Oreal's internal resources, the two companies said in a joint statement.

On completion, Magic's shares are expected to be withdrawn from the Hong Kong exchange.

"L'Oreal is paying 20 times [Magic's 2012 earnings before interest, tax, depreciation and amortisation], which is a bit high but still acceptable," said Summer Wang, an analyst at Bocom International. "After the proposed acquisition, it can help L'Oreal fast-track its market share in the budding facial mask sector. For Magic shareholders, it is a good chance to get out."

In 2012, Magic's MG brand of facial masks commanded a market share of 26.4 per cent by retail value, far ahead of its closest rivals, Inoherb and My Beauty Diary, according to ACNielsen. The sector is estimated to be worth more than 10 billion yuan (HK$12.6 billion), up from just two billion yuan in 2006.

Founded in 2005, Magic popularised affordable facial masks on the mainland, selling them for 10 to 25 yuan apiece at Watsons, supermarkets and cosmetics stores.

"Magic was the first to sell masks by piece, not in a box," says CCB International analyst Forrest Chan. "Like South Korea and Japan, we are seeing a trend of facial mask products becoming very popular in the mass market. It's becoming a [fast-moving consumer goods]."

China is L'Oreal's third-largest market behind the United States and France. The firm has 3,500 employees on the mainland at a research centre in Shanghai and two plants in Suzhou, Jiangsu province, and Yichang in Hubei province.

Chan said investors should expect more foreign acquisitions of Chinese consumer brands. "There will be more to come. It's not easy to build things from scratch in China. Distribution is the main hurdle in many cases," he said.