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Johnson & Johnson seeks acquisition of rival Shanghai Elsker

  • Staff Reporter
  • 2012-08-02
  • 14:07 (GMT+8)
Johnson & Johnson products at a store in Changsha. (Photo/CNS)

Johnson & Johnson products at a store in Changsha. (Photo/CNS)

Shanghai Elsker set an ambitious and lofty goal six years ago to challenge global giant Johnson & Johnson in the Chinese market. But after a good fight, the major domestic Chinese baby-care product supplier is likely to be acquired by J&J instead, according to media reports.

Shanghai Elsker has become a rare mainland Chinese enterprise that is capable of mounting real challenges against multinational corporations like J&J of the US.

Neither Shanghai Elsker nor Johnson & Johnson (China) Investment would confirm the reports about the ongoing acquisition talks. The latest market reports said that Shanghai Elsker is in the final phase of negotiation on accepting an offer of US$100 million from J&J following several months of negotiations.

The amount was higher than bids from some investment firms that have also shown strong interest in acquiring the company, according to Guangzhou's 21st Century Business Herald. There are already some private equity funds among Shanghai Elsker's current major shareholders.

Established in 2006, Shanghai Elsker has successfully established extensive marketing networks in China, including large chain stores run by Walmart of the US, RT-Mart from Taiwan and Carrefour from France as well as smaller stores selling healthcare products for mothers and babies. The company's annual sales revenue reach between 200 million and 300 million yuan (US$31.4 million-$47 million) per year.

The company ranks no.1 among competitors in certain market niches such as baby skincare products partly because it is willing to offer a larger portion of the profits to retail outlets than international corporations operating in China.

The company and Hong Kong-listed Prince Frog were rated as two strong domestic rivals that could pose real threats to J&J in China.

Shanghai Elsker did put up a good fight, including introducing popular imported brands from companies in Denmark. The company has also been regarded as one of the more progressive baby-care product manufacturers in China, winning certifications for the Council of Europe's Guidelines on Good Manufacturing Practices of Cosmetic Products and other ISO quality control standards.

Sources at Shanghai Elsker said the company was actually more interested in bids from investment funds but all the offers were not as high as that from J&J.

There were unconfirmed reports that one interested bidder failed to reach a deal after offering a price of 500 million yuan (US$78.4 million).

Rothschild PE Fund became the company's largest shareholder in 2009 with the original team, headed by corporate founder Liu Xiaokun, continuing to run the daily operations. Liu formerly worked as a sales director of the TJoy Group, one of the pioneers of cosmetics and body-care products in China.

Some analysts questioned how Liu would feel about the reported deal with J&J, since it runs contrary Liu's original goal of challenging multinationals, or whether it was a decision by current major shareholders who want to cash out when the timing and price offer are right.

Chinese cosmetics industry expert Zhang Binwu commented that all domestic Chinese cosmetics and body-care product suppliers tend to run into bottlenecks in achieving further breakthroughs after growing to a certain scale. It will be a good choice to sell the operations, at the right price, he said.

International brands have also had difficulties expanding in China. Under great pressure from competitors and shareholders for continuing growth, the quickest way is through mergers and acquisitions.

Sources said J&J remains weak in many regional markets in China because retailers are not interested in low profits from selling J&J products.

Some other analysts also said it is actually not a bad deal for Shanghai Elsker shareholders to get US$100 million from J&J for an enterprise in operation for just six years.

This would be the second major acquisition in China by J&J, based in New Jersey after it acquired Beijing Dabao Cosmetics in July 2008 for an estimated 2.3 billion yuan (US$361 million).

Analysts said that J&J is willing to pay a higher cost than other bidders to acquire Shanghai Elsker for the dual purposes of eliminating a strong rival while taking over the Chinese competitor's existing distribution channels, including those in provincial and municipal markets in China, to strengthen its domination in a crucial market outside the US.

References:

Liu Xiaokun 劉曉坤

Zhang Binwu 張兵武

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