TOKYO -- Japanese cosmetics maker Shiseido plans to sell a portion of its business, including hair care products, to European private-equity fund CVC Capital Partners for possibly more than 100 billion yen ($965 million), Nikkei has learned.
The move comes amid slumping sales during the coronavirus pandemic as more people stay at home. Shiseido aims to sell less-profitable businesses to focus on its core cosmetics business.
CVC will acquire Shiseido's "personal care business," which develops and sells daily necessities like skin care and body care products found in drugstores. It will also include its "Tsubaki" haircare brand of shampoos and conditioners as well as "Uno," a popular men's hair styling brand.
The business logged total revenue of 105.3 billion yen in the Asia region, including Japan and China, for the year through December 2019, accounting for 9% of Shiseido's overall revenue.
According to people familiar with the matter, Shiseido will sell its business to CVC's special-purpose company. Shiseido will hold a 35% stake while CVC will acquire 65%.
Shiseido said, "We are considering participating as a shareholder to the new company, which will operate the business and cooperate in future development and growth."
The deal will be decided by Shiseido's board of directors as early as this month, followed by the establishment of the SPC in March.
Shiseido's sales, which have relied on the massive inflow of foreign tourists into Japan, have been hit hard by the pandemic, with its core cosmetics business slumping. As of November, Shiseido was forecasting a net loss of 30 billion yen for 2020. The company changed its accounting period for financial statements in 2015, but a net loss for the full year will be Shiseido's first since the year ending March 2013.
Competition in the industry has intensified, with France's L'Oreal strengthening its development of high-end cosmetics.
According to data by Quick FactSet, Shiseido's operating expenses to sales ratio has stayed at around 70% for the past few years. That compares to L'Oreal at about 50% ratio and U.S. rival Estee Lauder at around 60%.
Its personal care business consists of many low-priced products, which has also put downward pressure on profitability. The emergence of startups in the hair care sector also prompted Shiseido to divest the business.
The time-honored Japanese company has already reviewed some of its other businesses. In 2018 it exited from its low-profit making hotel amenity business, then in 2019 it purchased U.S. skin care brand Drunk Elephant for about 90 billion yen in a bid to accelerate its efforts to grow a high-end skin care business.